SIPP - Lump Sum and then Monthly Contributions

Tom_Bradbury

I'm planning to open a SIPP as a second pension (I already have a work pension) and make an initial lump sum payment to use up unused annual allowance from previous years, and then make monthly contributions.  I'm a 40% tax payer.  I understand that I get an immediate 20% relief on the contribution but I have to claim the other 20% back from HMRC.  Can I write to HMRC immediately and ask for the 20% back to get the full 40% tax relief, or will I have to wait until the end of the tax year?  I'm employed and was hoping to get the additional tax back on my monthly contributions via my tax code, as really don't want to do an annual tax return (unless I have to), but not sure how it would work with getting the tax back on my initial lump sum payment. 

Also, does the tax rebate only get calculated against this current years tax paid, or can I get the rebate against tax paid in the last 3/4 years? 

cloud_dog

You only receive tax relief on contributions made during the current FY.  You can utilise carryforward to help contribute more than the £60k AA, as long as you have pensionable earnings in the current FY to support the gross contribution.

If you are paid under a Salary Sacrifice arrangement it would be more efficient to maximise thr workplace contribution (down to NMW) first.

Tom_Bradbury

cloud_dog said:

You only receive tax relief on contributions made during the current FY.  You can utilise carryforward to help contribute more than the £60k AA, as long as you have pensionable earnings in the current FY to support the gross contribution.

If you are paid under a Salary Sacrifice arrangement it would be more efficient to maximise thr workplace contribution (down to NMW) first.

OK. Thanks - that is helpful.

So, let me get this right - if the potential tax rebate combining the initial lump sum and monthly contributions is more than I forecast to pay in tax this year (2023/24), then I assume I will only get tax relief up to the amount of tax I pay, in which case, I assume it's worth splitting the lump sum investment over two tax years to maximise the tax relief. Would you concur?

My work pension is not a salary sacrifice arrangement, unfortunately. 

Dazed_and_C0nfused

Tom_Bradbury said:

cloud_dog said:

You only receive tax relief on contributions made during the current FY.  You can utilise carryforward to help contribute more than the £60k AA, as long as you have pensionable earnings in the current FY to support the gross contribution.

If you are paid under a Salary Sacrifice arrangement it would be more efficient to maximise thr workplace contribution (down to NMW) first.

OK. Thanks - that is helpful.

So, let me get this right - if the potential tax rebate combining the initial lump sum and monthly contributions is more than I forecast to pay in tax this year (2023/24), then I assume I will only get tax relief up to the amount of tax I pay, in which case, I assume it's worth splitting the lump sum investment over two tax years to maximise the tax relief. Would you concur?

My work pension is not a salary sacrifice arrangement, unfortunately. 

Making relief at source contributions would never get a refund of all income tax paid as they do not reduce your taxable income.

I think you are a bit confused about the impact of RAS contributions.

There is no fixed extra 20% either.  The gross contribution increases the amount of your basic rate band so more tax can be paid at 20% and less at 40%.  But if you contribute say £5,000 and only pay higher rate tax on £1,000 then the amount of higher rate tax relief is limited to that paid on £1,000.

There can be knock in benefits such as becoming eligible for Marriage Allowance or having a larger savings nil rate band (aka PSA).

You can get higher rate relief on a provisional basic via an increased tax code but you really don't want to contact HMRC about this until you have a better understanding. 

Perhaps you could clarify what you expect your taxable pay to be in 2023:24 (not your salary as this can often be totally different to your taxable pay which is reported on your P60).  And how much you expect to contribute (gross) into a RAS scheme.

You can only ever get tax relief for the tax year the RAS contribution is made in.