SIPP contribution - net vs gross

SaintAlf

Hello all, if my taxable pay this year is £150k, presumably a gross SIPP payment of £50k would reduce taxable pay to £100k and fully recover my personal allowance. For the gross SIPP amount to be £50k, how much do I need to pay into the SIPP before the end of the tax year? I understand the SIPP provider will add basic rate tax relief so I should put in a net amount but should I reduce the input further to account for recovering the higher rate and additional rate tax at the end of the year?  Thanks in advance.

NoMore

Its what ends up in the pension that's important, so to get 50k in you would make a contribution of 40k. Any further relief would be claimed by you and returned directly to you via a rebate or tax code change.

This calculator explains it Pension tax relief calculator | Hargreaves Lansdown

SaintAlf

Thanks for the super quick reply @NoMore , if my remaining annual allowance were £50k, would I be exceeding it when I claimed the further relief?

Dazed_and_C0nfused

SaintAlf said:

Hello all, if my taxable pay this year is £150k, presumably a gross SIPP payment of £50k would reduce taxable pay to £100k and fully recover my personal allowance. For the gross SIPP amount to be £50k, how much do I need to pay into the SIPP before the end of the tax year? I understand the SIPP provider will add basic rate tax relief so I should put in a net amount but should I reduce the input further to account for recovering the higher rate and additional rate tax at the end of the year?  Thanks in advance.

A contribution to a SIPP would never reduce your taxable income.

It will have basic rate relief added (£10k on a £40k net contribution)

And increase your basic rate band (from £37,700 to £87,700 with a gross contribution of £50k)

And reduce your adjusted net income (by £50k on a gross contribution of £50k).

If your primary concern is the tapered Personal Allowance then you need to remember to include all taxable income as your starting point.  Even taxable income which is taxed at 0%.

NoMore

SaintAlf said:

Thanks for the super quick reply @NoMore , if my remaining annual allowance were £50k, would I be exceeding it when I claimed the further relief?

The Annual Allowance is tested against the amount that ends up in the pension, so a 50k contribution (40k + 10k basic tax relief) would require 50k of AA available.

SaintAlf

Ah thanks @NoMore and @Dazed_and_C0nfused...that's helpful.  So higher rate relief does not end up in the pension so it's irrelevant when it comes to the AA.
I do have a concern about the tapered personal allowance, this is a one off situation for me due to a lump sum so it hasn't happened to me before.  My payslip shows Taxable Pay YTD which is net of pension contributions, I was working on the basis that if I pay enough into a SIPP I'll be able to benefit from the personal allowance.

Dazed_and_C0nfused

SaintAlf said:

Ah thanks @NoMore and @Dazed_and_C0nfused...that's helpful.  So higher rate relief does not end up in the pension so it's irrelevant when it comes to the AA.
I do have a concern about the tapered personal allowance, this is a one off situation for me due to a lump sum so it hasn't happened to me before.  My payslip shows Taxable Pay YTD which is net of pension contributions, I was working on the basis that if I pay enough into a SIPP I'll be able to benefit from the personal allowance.

You can, you just seem to be under the misapprehension that contributions to a SIPP reduce your taxable income.

Your Personal Allowance is based on your adjusted net income, not your taxable income.

It's quite possible to have taxable income of say £150k and still get the full Personal Allowance.

Did you read my original reply?

SaintAlf

Thanks, I did read it and appreciate your help.  Need to consider adjusted net income rather than taxable income.

SaintAlf

Thanks for pointing me in the right direction - I found this useful additional information https://platform.scottishwidows.co.uk/wp-content/uploads/Personal-allowance-and-pension-contributions.pdf