Contributing to SIPP to keep £1,000 personal savings allowance

Isaac_:)

I am likely to enter the higher rate tax band this year, and am looking to use pension contributions (net pay arrangement through my employer) to reduce my taxable income so that I don’t pay higher rate tax and can keep the £1,000 personal savings allowance.

From my calculations, this year I am likely to still be in the higher rate band after my employee pension contributions, so am looking at paying into a Vanguard SIPP to take me under the higher rate threshold.

My question is would a SIPP (I understand they are relief at source schemes) have the desired effect? If so, would this show up on my HMRC online account? While I know I could claim higher rate tax relief on contributions above the threshold, I’m not sure if it would reduce my taxable income so that I’d keep the £1,000 allowance.

Apologies if this has been asked before on here but I’ve not been able to find a definitive answer.

kuratowski

It won't show up on your HMRC online account automatically; you will need to tell HMRC about your SIPP (relief at source) contributions.  There's an online form you can use, or you can write or phone them.  They will adjust your tax code (and unless you tell them otherwise, they will assume the same contributions in future years).

It will not reduce your taxable income.  Instead, it will increase your basic rate band (by the amount of the gross contribution - i.e. the amount you pay plus basic rate relief added on).  Assuming you contribute the right amount, that will take you out of paying higher rate tax, which preserves your £1000 PSA.  So, it will have the desired effect.

By the way, if you make any donations to charity with a gift aid declaration, it is treated in the same way as SIPP contributions (the grossed up donation is added to your BRB).  This can be worth taking into account in your calculations.

Isaac_:)

kuratowski said:

It won't show up on your HMRC online account automatically; you will need to tell HMRC about your SIPP (relief at source) contributions.  There's an online form you can use, or you can write or phone them.  They will adjust your tax code (and unless you tell them otherwise, they will assume the same contributions in future years).

It will not reduce your taxable income.  Instead, it will increase your basic rate band (by the amount of the gross contribution - i.e. the amount you pay plus basic rate relief added on).  Assuming you contribute the right amount, that will take you out of paying higher rate tax, which preserves your £1000 PSA.  So, it will have the desired effect.

By the way, if you make any donations to charity with a gift aid declaration, it is treated in the same way as SIPP contributions (the grossed up donation is added to your BRB).  This can be worth taking into account in your calculations.

Thanks for the info, that's all really helpful.

Do you have a link / instructions to access the online form you mentioned? Unless you're talking about doing a self assessment tax return I can't seem to find it.

kuratowski

You don't need to be doing self assessment, you can inform HMRC using your personal tax account.

From the homepage, go into the Pay as you earn (PAYE) section.  Click check current tax year.

Look at the bar on the right hand side.  Click What makes up your tax free amount.

Scroll down, and click Add a missing allowance or tax relief.

This brings up the online form you can use to inform HMRC.  Tell them about your "personal pension payments" i.e. contributions to your SIPP.  Be very clear about what figure you are telling them - the most relevant figure to quote is the gross payment (i.e. the amount with basic rate tax relief added on).

AlanP_2

Just a quick further question on this topic if you don't mind OP.

How do you tell HMRC about a SIPP contribution that is part eligible for HR relief and part isn't?

Do you just enter the amount due HR relief of the full gross amount contributed?

Thanks

LeafGreen

Can you not make AVCs into your existing employment pension scheme?

Sorry if this is a daft question - I'm in a similar position and don't fully understand the options available and the pro's/con's

Dazed_and_C0nfused

AlanP_2 said:

Just a quick further question on this topic if you don't mind OP.

How do you tell HMRC about a SIPP contribution that is part eligible for HR relief and part isn't?

Do you just enter the amount due HR relief of the full gross amount contributed?

Thanks

You are overcomplicating things.

A RAS contribution never itself get additional relief.  It simply increases your basic rate band so you can pay more tax at basic rate and less at higher rate.

You just need to make sure HMRC know it is a RAS contribution and what the gross amount, inclusive of basic rate tax relief is.

Wish_I_Could_Save_More

kuratowski said:

It won't show up on your HMRC online account automatically; you will need to tell HMRC about your SIPP (relief at source) contributions.  There's an online form you can use, or you can write or phone them.  They will adjust your tax code (and unless you tell them otherwise, they will assume the same contributions in future years).

One quick question if I may.  My wife is a basic rate tax payer who pays regularly into a SIPP where she receives tax relief 6-8 weeks later at 20%.  Is there any additional benefit advising HMRC about this SIPP payment?

Thanks a lot

Dazed_and_C0nfused

Wish_I_Could_Save_More said:

kuratowski said:

It won't show up on your HMRC online account automatically; you will need to tell HMRC about your SIPP (relief at source) contributions.  There's an online form you can use, or you can write or phone them.  They will adjust your tax code (and unless you tell them otherwise, they will assume the same contributions in future years).

One quick question if I may.  My wife is a basic rate tax payer who pays regularly into a SIPP where she receives tax relief 6-8 weeks later at 20%.  Is there any additional benefit advising HMRC about this SIPP payment?

Thanks a lot

Highly unlikely to be necessary unless she starts paying some intermediate or higher rate tax.

AlanP_2

Dazed_and_C0nfused said:

AlanP_2 said:

Just a quick further question on this topic if you don't mind OP.

How do you tell HMRC about a SIPP contribution that is part eligible for HR relief and part isn't?

Do you just enter the amount due HR relief of the full gross amount contributed?

Thanks

You are overcomplicating things.

A RAS contribution never itself get additional relief.  It simply increases your basic rate band so you can pay more tax at basic rate and less at higher rate.

You just need to make sure HMRC know it is a RAS contribution and what the gross amount, inclusive of basic rate tax relief is.

Thanks for this, but can I just double check for my own piece of mind:


My OH contributes through a Net Pay scheme to her work pension down to approx the BR tax threshold. She also contributes to a separate SIPP via RAS.

Depending on pay rise given part way through the tax year some of the SIPP contribution should attract HR "relief" in some way, presumably by raising BR band as you say.

However if BR band is raised that would reduce the HR relief automatically given via the workplace scheme going forwards I think.

What we want to achieve is HR relief on workplace scheme (as can be taken tax free alongside DB) and then mop up any remaining / variable HR "relief" via SIPP recognising that the majority of this will be from income within the BR band.

I'm probably still overthinking it, but just can't get my head around how it would all work out.

Dazed_and_C0nfused

The beauty of net pay contributions are that you immediately receive the maximum possible tax savings each pay day.

They are always to attract relief first as they directly impact the amount taxable pay.  And it's only then that RAS contributions will make a difference.

In the circumstances you're describing you might be best of waiting until after the February pay slip when you will have a good idea of what the taxable pay is going to be for the year and then make a RAS contribution to the SIPP for whatever (gross) amount is needed to increase the basic rate band to avoid higher rate tax.

Got to confess though you have totally lost me with this comment.  How will higher rate relief be due on income within the basis rate band 🤔

If salary is say £55,000 and net pay contributions mean taxable pay is only £49,500 and there is no other taxable income then there wouldn't be any higher rate relief due on any RAS contributions.

then mop up any remaining / variable HR "relief" via SIPP recognising that the majority of this will be from income within the BR band.