Vanguard SIPP - time for tax relief to be applied

marcusjm

Hi,

I set up a Vanguard SIPP back in early September. Their T&Cs quoted an average of 8-10 weeks for tax relief to be paid to the client account. I went ahead, but was surprised as HL is usually about 4 weeks.

I'm now 11 weeks in and still no tax relief received. My fund has increased by 8% in that period and I've missed the opportunity of the additional 20%.

I doubt HMRC give preference to one provider over another, so I suspect Vanguard have the funds in a holding account earning interest. This feels to be against what the consumer duty act is trying to resolve.

Has anyone experienced the same issue with Vanguard?

Thanks 

Dazed_and_C0nfused

marcusjm said:

Hi,

I set up a Vanguard SIPP back in early September. Their T&Cs quoted an average of 8-10 weeks for tax relief to be paid to the client account. I went ahead, but was surprised as HL is usually about 4 weeks.

I'm now 11 weeks in and still no tax relief received. My fund has increased by 8% in that period and I've missed the opportunity of the additional 20%.

I doubt HMRC give preference to one provider over another, so I suspect Vanguard have the funds in a holding account earning interest. This feels to be against what the consumer duty act is trying to resolve.

Has anyone experienced the same issue with Vanguard?

Thanks 

There is no additional 20%, it's 25%.

On what date did you make your contribution?

If you took the trouble to establish their funding cycle you could game the system to obtain the minimum window between contribution and tax relief being added.

Or just use a provider who pre funds the tax relief.

marcusjm

It's the refund of the 20% tax I've paid, but yes that's 25% uplift of the net amount.

I funded the SIPP on 3rd September. I wasn't aware there was a cycle of claims. I don't remember seeing that mentioned in their terms, just a comment about relief being given 8-10 weeks.

Dazed_and_C0nfused

marcusjm said:

It's the refund of the 20% tax I've paid, but yes that's 25% uplift of the net amount.

I funded the SIPP on 3rd September. I wasn't aware there was a cycle of claims. I don't remember seeing that mentioned in their terms, just a comment about relief being given 8-10 weeks.

I don't know why you think that, there is no connection between the tax you have (or haven't) paid and the pension tax relief added to a relief at source contribution.

This is an example from another company.  I suspect the issue is Vanguard have got your contribution down as being received in the next car contribution month and therefore tax relief will be credited in the next few days.

https://www.investaccpensions.co.uk/tax-relief-calendar/

bjorn_toby_wilde

I suspect you just missed their cut off date.

This is what AJ Bell say:

“It depends when you pay into your SIPP. If we receive your SIPP contribution on or before the 5th of the month, we’ll reclaim the basic-rate tax relief from HMRC and pay it as cash into your SIPP account on the 25th of the following month.

For example, if we receive your contribution on 1 April, we’ll pay the tax reclaim into your account on 25 May. However, if we receive your contribution on 6 April, we’ll pay your tax reclaim on 25 June.”

That’s what Dazed means by gaming the system. It caught me out the first time I paid in but now my annual contribution goes in on 5th.  If you check I’m sure Vanguard will have a similar system

dunstonh

I'm now 11 weeks in and still no tax relief received. My fund has increased by 8% in that period and I've missed the opportunity of the additional 20%.

The loss of pre-funding should be taken into account when you are looking at fees.  The Lang Cat did some research a decade or so back and gave the ballpark figure.  It would vary on frequency and amounts and investments but from memory it was about 0.1% p.a. lost by not having pre-funding.

In other words, if you had one provider that pre-funded at 0.20% and another that didn't prefund at 0.15%, then you were likely to be better off sticking with the more expensive provider.

However, in your case, neither provider pre-fund and they both apply the money from HMRC when they get it.   So, there is no difference in that respect.

If your payment date has changed, that will be the key driver behind the difference.    All providers will submit before the monthly deadline and HMRC pay them on the same date the following month.    The internal date for the cut off to supply HMRC in time for their cut off may vary but the rest is the same.

I doubt HMRC give preference to one provider over another, so I suspect Vanguard have the funds in a holding account earning interest. This feels to be against what the consumer duty act is trying to resolve.

Nothing to do with consumer duty.  Client money rules would apply which long pre-date consumer duty.  You are being paranoid.

I funded the SIPP on 3rd September. I wasn't aware there was a cycle of claims. I don't remember seeing that mentioned in their terms, just a comment about relief being given 8-10 weeks.

I cant see why providers would put HMRC processes in their terms.   A payment on the 3rd September is very tight to make the cut off.  Especially if they wait for funds to be cleared first.

marcusjm

Dazed_and_C0nfused said:

marcusjm said:

It's the refund of the 20% tax I've paid, but yes that's 25% uplift of the net amount.

I funded the SIPP on 3rd September. I wasn't aware there was a cycle of claims. I don't remember seeing that mentioned in their terms, just a comment about relief being given 8-10 weeks.

I don't know why you think that, there is no connection between the tax you have (or haven't) paid and the pension tax relief added to a relief at source contribution.

This comment has c0nfused me. If a SIPP is trying to replicate a traditional work pension i.e. contributions made before tax, why is there no connection? Not sure if I'm being dim.

NoMore

For example, somebody whose only income is 12k per year so no income tax paid, can contribute £9600 to a pension and get tax relief of £2400, despite having paid no income tax.

That's what D&C means where the tax relief due is not related to the tax you have paid.

Dazed_and_C0nfused

NoMore said:

For example, somebody whose only income is 12k per year so no income tax paid, can contribute £9600 to a pension and get tax relief of £2400, despite having paid no income tax.

That's what D&C means where the tax relief due is not related to the tax you have paid.

Couldn't have said better 😉 

Albermarle

marcusjm said:

Dazed_and_C0nfused said:

marcusjm said:

It's the refund of the 20% tax I've paid, but yes that's 25% uplift of the net amount.

I funded the SIPP on 3rd September. I wasn't aware there was a cycle of claims. I don't remember seeing that mentioned in their terms, just a comment about relief being given 8-10 weeks.

I don't know why you think that, there is no connection between the tax you have (or haven't) paid and the pension tax relief added to a relief at source contribution.

This comment has c0nfused me. If a SIPP is trying to replicate a traditional work pension i.e. contributions made before tax, why is there no connection? Not sure if I'm being dim.

There is no such thing really as a traditional Workplace pension. Contributions can come out before tax, after tax or by salary sacrifice. All three systems are in operation depending on the choice of the employer.

So a SIPP, where you add to it personally, is replicating workplace pensions where employee contributions are taken after tax . A so called Relief at source scheme. 

SacredStephan

https://www.hl.co.uk/pensions/tax-relief

HL say that application of tax relief is "always 6-11 weeks after the date of the initial contribution."

Many visitors to this forum get confused when they assume there is a direct link between tax that they paid (on their employment income, trading profit, savings interest etc) and the tax relief that was received after making a pension contribution. If you disconnect the tax calculation and the tax relief calculation you may find each calculation easier to understand.