How does higher rate tax relief on a SIPP work?

rottcodd

My partner is a higher rate tax payer, earning about £65k. They have a pension with work that they are contributing 3% to, matched by employer. Employer won't increase contributions if partner increases theirs.

Partner has loads of little pensions held elsewhere and has a tendency to move job a lot. I'm encouraging them to open up a SIPP to bring them all in one place, and then to contribute a bit more each month to that SIPP. They're onboard with this but I'm a confused about the higher rate tax situation, as I am not one myself.

1. Let's say they open up a SIPP and add all their old pensions into it. They then start contributing £100 a month into the SIPP, so £1,200 a year. In the meantime they continue contributing whatever they're contributing into their work pension. Automatically the SIPP provider will top it up to £1,500 a year because of the basic rate relief right? 

2. Then what happens? At the end of the tax year, they phone HMRC, wait on the phone for seven hours, say that they've contributed £1,200 this year, then HMRC changes their tax code in their pay slip for one month, and then they get that paid to them extra in their pay packet? What is the calculation for how much they get back? 

3. It's just the £1,200 they claim back the extra rate on isn't it, not any of the contributions they make to the workplace pension?  Or do they also need to claiming back from those contributions too? 

3. Presumably with that extra money they get in their pay packet, they couldn't then put that back into the SIPP? If they can, doesn't that mean they can endlessly keep adding this extra money back into their SIPP? If they can't, then what's to stop them just upping their monthly contributions into their SIPP for a couple of months to match what they got back in tax relief? 

Think there is something basic I'm not getting about it...

lisyloo

1. They should get advice ideally. There might be penalties or valuable benefits with old pensions so there could be either good or bad reasons to keep them. Newer ones are much more transfereable, older ones less so.
yes the SIPP provider will do basic rate tax relief.

2. I would write a letter but yes they would get the other 20% tax relief into their pocket.

3. It depends how the workplace pension was taken. If it was taken before tax then then there's nothing to claim. If it's after tax then it's the same as the SIPP.
The simplest way to find out id to check their payslip deduction AND their pension statement (or online).
So for example if they were deducted £80 but £100 appears in their pension then that was net of basic rate tax relief.
Two ways to find out are to ask the payroll department or simply compare the payroll deduction with the pension contribution and it should be obvious.

3. yes they can put their extra tax relief into the SIPP. No it's not endless, it would get smaller and smaller, so first cycle would be 20%, then second cycle would be 20% of 20%, then third cycle would be 20% of 20% of 20%.
But yes it would be a good idea (if they can afford it) to put in some extra to account for the extra tax relief.
I don't know their age but 6% is woefully inadequate if they want a decent retirement.
They need to be in double figures at least, but of course it comes down to what people can afford.

Green_hopeful

Q2 if he does self assessment he can claim through that process. Otherwise as indicated above it’s by letter. There are templates online. 

If you want to contact HMRC then the chatbot will put you through to an advisor if you type adviser in the text. They will want the name address dob and national insurance no. 

Marcon

rottcodd said:

My partner is a higher rate tax payer, earning about £65k. They have a pension with work that they are contributing 3% to, matched by employer. Employer won't increase contributions if partner increases theirs.

Partner has loads of little pensions held elsewhere and has a tendency to move job a lot. I'm encouraging them to open up a SIPP to bring them all in one place, and then to contribute a bit more each month to that SIPP. They're onboard with this but I'm a confused about the higher rate tax situation, as I am not one myself.

1. Let's say they open up a SIPP and add all their old pensions into it. They then start contributing £100 a month into the SIPP, so £1,200 a year. In the meantime they continue contributing whatever they're contributing into their work pension. Automatically the SIPP provider will top it up to £1,500 a year because of the basic rate relief right? 

2. Then what happens? At the end of the tax year, they phone HMRC, wait on the phone for seven hours, say that they've contributed £1,200 this year, then HMRC changes their tax code in their pay slip for one month, and then they get that paid to them extra in their pay packet? What is the calculation for how much they get back? 

3. It's just the £1,200 they claim back the extra rate on isn't it, not any of the contributions they make to the workplace pension?  Or do they also need to claiming back from those contributions too? 

3. Presumably with that extra money they get in their pay packet, they couldn't then put that back into the SIPP? If they can, doesn't that mean they can endlessly keep adding this extra money back into their SIPP? If they can't, then what's to stop them just upping their monthly contributions into their SIPP for a couple of months to match what they got back in tax relief? 

Think there is something basic I'm not getting about it...

If you have a look on the SIPP provider's website (any SIPP provider if you've not yet chosen one) and read the information there, that should answer all your questions, plus a few you've not yet thought of. There is nothing magic about a SIPP; given that you and your partner don't have much knowledge in this area (yet), maybe a simple personal pension would be better for now? Could always transfer to a SIPP at a later date when their understanding has increased.

Mutton_Geoff

Considering just £100 a month into a SIPP whilst earning £65k is a bit short sighted unless other pension provisions are generous.

Half your age as a percentage is rough rule of thumb.