Paid too much into SIPP...

dombarker75

Ok so be gentle with me I'm obviously an idiot...

I recently inherited some cash and decided to open a SIPP.

Despite thinking I'd researched properly I've somehow managed to misunderstand the contribution rules... basically not realised that contributions are limited to 100% of annual earnings irrespective of the 3 year carry over allowance.

So I basically deposited £40k this tax year, currently working part time so will only earn approx £16k this year. Id mistakenly assumed I could roll over my previous years up to the 40k limit. Doh.

My understanding now is that I'll have to pay an annual allowance charge of 20% on the overpayment.

Presumably this just offsets the tax relief I received.

What are the logistics of this though? A bill from the tax man at the end of the tax year? Extra PAYE deductions this year or next year?

Feeling pretty foolish about it tbh but actually paying it either way isn't a financial issue for me.

Marcon

dombarker75 said:

Ok so be gentle with me I'm obviously an idiot...

I recently inherited some cash and decided to open a SIPP.

Despite thinking I'd researched properly I've somehow managed to misunderstand the contribution rules... basically not realised that contributions are limited to 100% of annual earnings irrespective of the 3 year carry over allowance.

Join a club with a huge number of members!

dombarker75 said:

My understanding now is that I'll have to pay an annual allowance charge of 20% on the overpayment.

Presumably this just offsets the tax relief I received.

What are the logistics of this though? A bill from the tax man at the end of the tax year? Extra PAYE deductions this year or next year?

Feeling pretty foolish about it tbh but actually paying it either way isn't a financial issue for me.

You don't need to. See  https://techzone.abrdn.com/public/pensions/Guide-Individuals-Contributions#anchor_9 and scroll down to the section headed 'Refunding contributions'.

dombarker75

Marcon said:

dombarker75 said:

Ok so be gentle with me I'm obviously an idiot...

I recently inherited some cash and decided to open a SIPP.

Despite thinking I'd researched properly I've somehow managed to misunderstand the contribution rules... basically not realised that contributions are limited to 100% of annual earnings irrespective of the 3 year carry over allowance.

Join a club with a huge number of members!

dombarker75 said:

My understanding now is that I'll have to pay an annual allowance charge of 20% on the overpayment.

Presumably this just offsets the tax relief I received.

What are the logistics of this though? A bill from the tax man at the end of the tax year? Extra PAYE deductions this year or next year?

Feeling pretty foolish about it tbh but actually paying it either way isn't a financial issue for me.

You don't need to. 

Ok I feel a touch better thanks ha

Still not entirely sure what the 'refunding contributions' section means in practice though? That the excess contribution would be returned to me at the end of the tax year? That the excess tax relief would be returned to HMRC at the end of the tax year?

GrumpyDil

It suggests the provider will refund the contributions to you and the tax relief back to HMRC. Easiest thing is to contact your SIPP provider and ask them. 

dombarker75

GrumpyDil said:

It suggests the provider will refund the contributions to you and the tax relief back to HMRC. Easiest thing is to contact your SIPP provider and ask them. 

I mean that would be the best outcome for me but I don't really understand the logistics of it still. 

I work part time casual so there's no way of calculating my income until the end of the tax year...seems unlikely I'd be allowed to have overpayment invested for 9 months in the meantime doesn't it?

An annual allowance charge seems the most logical way for them to reclaim the money doesn't it? (If the least tax efficient method for me personally.)

Hopefully someone who has done similar will see this this morning, failing that I'll give em a ring.

Dazed_and_C0nfused

dombarker75 said:

GrumpyDil said:

It suggests the provider will refund the contributions to you and the tax relief back to HMRC. Easiest thing is to contact your SIPP provider and ask them. 

I mean that would be the best outcome for me but I don't really understand the logistics of it still. 

I work part time casual so there's no way of calculating my income until the end of the tax year...seems unlikely I'd be allowed to have overpayment invested for 9 months in the meantime doesn't it?

An annual allowance charge seems the most logical way for them to reclaim the money doesn't it? (If the least tax efficient method for me personally.)

Hopefully someone who has done similar will see this this morning, failing that I'll give em a ring.

If you need to pay an annual allowance charge then you will need to register for Self Assessment and complete a tax return.

The charge will form part (or all) of your Self Assessment liability.

If you continue to earn at similar levels i.e. not paying a huge amount of tax it's highly unlikely you will be able have the amount owed collected via your tax code, it would have to be a one off payment to HMRC.

For the current tax year anything owed under Self Assessment should be paid by 31 January 2025.

dombarker75

Dazed_and_C0nfused said:

dombarker75 said:

GrumpyDil said:

It suggests the provider will refund the contributions to you and the tax relief back to HMRC. Easiest thing is to contact your SIPP provider and ask them. 

I mean that would be the best outcome for me but I don't really understand the logistics of it still. 

I work part time casual so there's no way of calculating my income until the end of the tax year...seems unlikely I'd be allowed to have overpayment invested for 9 months in the meantime doesn't it?

An annual allowance charge seems the most logical way for them to reclaim the money doesn't it? (If the least tax efficient method for me personally.)

Hopefully someone who has done similar will see this this morning, failing that I'll give em a ring.

If you need to pay an annual allowance charge then you will need to register for Self Assessment and complete a tax return.

The charge will form part (or all) of your Self Assessment liability.

If you continue to earn at similar levels i.e. not paying a huge amount of tax it's highly unlikely you will be able have the amount owed collected via your tax code, it would have to be a one off payment to HMRC.

For the current tax year anything owed under Self Assessment should be paid by 31 January 2025.

Thanks, that seems more logical to me tbh. 

A rather silly error by me that is going to 'cost' me a 5k ish in lost tax relief (i.e. I could have dripped the 40k in over the next 4 years)

You live and learn I guess. Not the clearest of information out there tho I must say...I distinctly remember reading an example that detailed  a 40k annual contribution plus 3* 40k carry over contributions for a total  limit of £160k....not ever being near that wage bracket it wouldn't have occurred to me unless explicitly specified that annual income on that year was the more relevant cap.

It was only skimming a thread on here yesterday that even alerted me to it, so grateful for that at least.

Marcon

dombarker75 said:

Dazed_and_C0nfused said:

dombarker75 said:

GrumpyDil said:

It suggests the provider will refund the contributions to you and the tax relief back to HMRC. Easiest thing is to contact your SIPP provider and ask them. 

I mean that would be the best outcome for me but I don't really understand the logistics of it still. 

I work part time casual so there's no way of calculating my income until the end of the tax year...seems unlikely I'd be allowed to have overpayment invested for 9 months in the meantime doesn't it?

An annual allowance charge seems the most logical way for them to reclaim the money doesn't it? (If the least tax efficient method for me personally.)

Hopefully someone who has done similar will see this this morning, failing that I'll give em a ring.

If you need to pay an annual allowance charge then you will need to register for Self Assessment and complete a tax return.

The charge will form part (or all) of your Self Assessment liability.

If you continue to earn at similar levels i.e. not paying a huge amount of tax it's highly unlikely you will be able have the amount owed collected via your tax code, it would have to be a one off payment to HMRC.

For the current tax year anything owed under Self Assessment should be paid by 31 January 2025.

Thanks, that seems more logical to me tbh. 

A rather silly error by me that is going to 'cost' me a 5k ish in lost tax relief (i.e. I could have dripped the 40k in over the next 4 years)

You live and learn I guess. Not the clearest of information out there tho I must say...I distinctly remember reading an example that detailed  a 40k annual contribution plus 3* 40k carry over contributions for a total  limit of £160k....not ever being near that wage bracket it wouldn't have occurred to me unless explicitly specified that annual income on that year was the more relevant cap.

It was only skimming a thread on here yesterday that even alerted me to it, so grateful for that at least.

There are plenty of examples on plenty of websites which are incorrect, poorly written or plain wrong, so you are far from alone.

I think you're making heavy weather of this, though. As suggested above, ring your SIPP provider - they are likely to be able to sort it out for you in a matter of a moments.

In future years, you should know your income, albeit in rough terms, by the end of March in each tax year, and provided your contribution is made promptly, you'll be able to pay it in to your SIPP by the end of the tax year.

DT2001

dombarker75 said:

Dazed_and_C0nfused said:

dombarker75 said:

GrumpyDil said:

It suggests the provider will refund the contributions to you and the tax relief back to HMRC. Easiest thing is to contact your SIPP provider and ask them. 

I mean that would be the best outcome for me but I don't really understand the logistics of it still. 

I work part time casual so there's no way of calculating my income until the end of the tax year...seems unlikely I'd be allowed to have overpayment invested for 9 months in the meantime doesn't it?

An annual allowance charge seems the most logical way for them to reclaim the money doesn't it? (If the least tax efficient method for me personally.)

Hopefully someone who has done similar will see this this morning, failing that I'll give em a ring.

If you need to pay an annual allowance charge then you will need to register for Self Assessment and complete a tax return.

The charge will form part (or all) of your Self Assessment liability.

If you continue to earn at similar levels i.e. not paying a huge amount of tax it's highly unlikely you will be able have the amount owed collected via your tax code, it would have to be a one off payment to HMRC.

For the current tax year anything owed under Self Assessment should be paid by 31 January 2025.

Thanks, that seems more logical to me tbh. 

A rather silly error by me that is going to 'cost' me a 5k ish in lost tax relief (i.e. I could have dripped the 40k in over the next 4 years)

You live and learn I guess. Not the clearest of information out there tho I must say...I distinctly remember reading an example that detailed  a 40k annual contribution plus 3* 40k carry over contributions for a total  limit of £160k....not ever being near that wage bracket it wouldn't have occurred to me unless explicitly specified that annual income on that year was the more relevant cap.

It was only skimming a thread on here yesterday that even alerted me to it, so grateful for that at least.

Having read Marcon’s link I think you can feed in over the next few years. Contact your SIPP holder and advise them that you made an error as you only earnt (say £16k) last year and will do likewise this tax year (you can provide them with your last self assessment form to back it up).They can then refund the excess and pay HMRC the extra relief. If you do not think you will earn quite as much this year say so and put in just £10-12k until March next year and then calculate your earnings and add extra then. Worth checking.

I agree it can be quite difficult to work out your net earnings before the tax year end

dombarker75

Marcon said:

dombarker75 said:

Dazed_and_C0nfused said:

dombarker75 said:

GrumpyDil said:

It suggests the provider will refund the contributions to you and the tax relief back to HMRC. Easiest thing is to contact your SIPP provider and ask them. 

I mean that would be the best outcome for me but I don't really understand the logistics of it still. 

I work part time casual so there's no way of calculating my income until the end of the tax year...seems unlikely I'd be allowed to have overpayment invested for 9 months in the meantime doesn't it?

An annual allowance charge seems the most logical way for them to reclaim the money doesn't it? (If the least tax efficient method for me personally.)

Hopefully someone who has done similar will see this this morning, failing that I'll give em a ring.

If you need to pay an annual allowance charge then you will need to register for Self Assessment and complete a tax return.

The charge will form part (or all) of your Self Assessment liability.

If you continue to earn at similar levels i.e. not paying a huge amount of tax it's highly unlikely you will be able have the amount owed collected via your tax code, it would have to be a one off payment to HMRC.

For the current tax year anything owed under Self Assessment should be paid by 31 January 2025.

Thanks, that seems more logical to me tbh. 

A rather silly error by me that is going to 'cost' me a 5k ish in lost tax relief (i.e. I could have dripped the 40k in over the next 4 years)

You live and learn I guess. Not the clearest of information out there tho I must say...I distinctly remember reading an example that detailed  a 40k annual contribution plus 3* 40k carry over contributions for a total  limit of £160k....not ever being near that wage bracket it wouldn't have occurred to me unless explicitly specified that annual income on that year was the more relevant cap.

It was only skimming a thread on here yesterday that even alerted me to it, so grateful for that at least.

There are plenty of examples on plenty of websites which are incorrect, poorly written or plain wrong, so you are far from alone.

I think you're making heavy weather of this, though. As suggested above, ring your SIPP provider - they are likely to be able to sort it out for you in a matter of a moments.

In future years, you should know your income, albeit in rough terms, by the end of March in each tax year, and provided your contribution is made promptly, you'll be able to pay it in to your SIPP by the end of the tax year.

Yeah ta I will ring them next week, on holiday this week and can't be bothered with the mither, was just trying to prep myself with relevant info.

Thanks again

Malthusian

dombarker75 said:

A rather silly error by me that is going to 'cost' me a 5k ish in lost tax relief (i.e. I could have dripped the 40k in over the next 4 years)

You haven't lost anything. Assuming you get a refund, as per DT2001 you can then pay in what you were actually allowed to pay in, and you will get all the tax relief there is to get.
Let's say I see a sign saying "Buy One Doughnut Get One Free", don't see the small print saying "Max 6 per customer", bring 12 doughnuts to the checkout, and then have to leave six behind - I haven't lost three free doughnuts. You can't lose something that never existed.