Best way to approach 40% relief on SIPP

seans_elysees

I’m currently paying LGPS & AVC pension direct from salary. 

At some point, this is likely to generate too much pension in that AVC pot. (As limited to 25% tax free, and/or buy additional DB) 

What I want to do is probably switch focus to building on my existing SIPP pot - which will bridge me from 57->? range. I understand this is a bit messier than being able to contribute to AVCs straight from salary. 

So… can someone check my workings? 

Say I want to pay £10k pa into a SIPP as a 40% tax payer. 

I would pay £8k (net) to the SIPP provider. £8k * 1.25 , provides the 20% default relief of £2k and gets me to my £10k contribution. I’m then entitled to another £2k back for the other 20% ? 

What is the best way to approach that scenario with HMRC to get the extra tax relief if I know I want to contribute that amount at the start of a tax year? Does it become a pain to tweak the amounts year on year? 

TheSpectator

What will your taxable pay be? That's your starting point.

Dazed_and_C0nfused

seans_elysees said:

I’m currently paying LGPS & AVC pension direct from salary. 

At some point, this is likely to generate too much pension in that AVC pot. (As limited to 25% tax free, and/or buy additional DB) 

What I want to do is probably switch focus to building on my existing SIPP pot - which will bridge me from 57->? range. I understand this is a bit messier than being able to contribute to AVCs straight from salary. 

So… can someone check my workings? 

Say I want to pay £10k pa into a SIPP as a 40% tax payer. 

I would pay £8k (net) to the SIPP provider. £8k * 1.25 , provides the 20% default relief of £2k and gets me to my £10k contribution. I’m then entitled to another £2k back for the other 20% ? 

What is the best way to approach that scenario with HMRC to get the extra tax relief if I know I want to contribute that amount at the start of a tax year? Does it become a pain to tweak the amounts year on year? 

Will you actually be a higher rate payer if you are already contributing a lot?

There is no "other 20%" though.  A relief at source contribution to a SIPP increases your basic rate band so any personal tax saving is entirely down to what other taxable income (and types of income) you have in that tax year.

It could be 20%, it could be more than 20%.  It could be 0%.

seans_elysees

TheSpectator said:

What will your taxable pay be? That's your starting point.

My pay is currently:
Gross £57,283
Taxable (after LGPS) £53,215
Earnings above 42% threshold £9553

I rounded my sample scenario to £10k for simplicity. 

Dazed_and_C0nfused said:

seans_elysees said:

I’m currently paying LGPS & AVC pension direct from salary. 

At some point, this is likely to generate too much pension in that AVC pot. (As limited to 25% tax free, and/or buy additional DB) 

What I want to do is probably switch focus to building on my existing SIPP pot - which will bridge me from 57->? range. I understand this is a bit messier than being able to contribute to AVCs straight from salary. 

So… can someone check my workings? 

Say I want to pay £10k pa into a SIPP as a 40% tax payer. 

I would pay £8k (net) to the SIPP provider. £8k * 1.25 , provides the 20% default relief of £2k and gets me to my £10k contribution. I’m then entitled to another £2k back for the other 20% ? 

What is the best way to approach that scenario with HMRC to get the extra tax relief if I know I want to contribute that amount at the start of a tax year? Does it become a pain to tweak the amounts year on year? 

Will you actually be a higher rate payer if you are already contributing a lot?

There is no "other 20%" though.  A relief at source contribution to a SIPP increases your basic rate band so any personal tax saving is entirely down to what other taxable income (and types of income) you have in that tax year.

It could be 20%, it could be more than 20%.  It could be 0%.

Thanks. See details above that I would still be in higher rate. I’d basically be shifting my current £9.5k of AVC contributions to instead paying that value into SIPP. Avoiding 42% tax hit. 

If my basic rate band is what shifts as you suggest - how does HMRC know to do that? 

MallyGirl

always worth being clear if you are in Scotland vs England on matters of tax

TheSpectator

seans_elysees said:

TheSpectator said:

What will your taxable pay be? That's your starting point.

My pay is currently:
Gross £57,283
Taxable (after LGPS) £53,215
Earnings above 42% threshold £9553

I rounded my sample scenario to £10k for simplicity. 

Dazed_and_C0nfused said:

seans_elysees said:

I’m currently paying LGPS & AVC pension direct from salary. 

At some point, this is likely to generate too much pension in that AVC pot. (As limited to 25% tax free, and/or buy additional DB) 

What I want to do is probably switch focus to building on my existing SIPP pot - which will bridge me from 57->? range. I understand this is a bit messier than being able to contribute to AVCs straight from salary. 

So… can someone check my workings? 

Say I want to pay £10k pa into a SIPP as a 40% tax payer. 

I would pay £8k (net) to the SIPP provider. £8k * 1.25 , provides the 20% default relief of £2k and gets me to my £10k contribution. I’m then entitled to another £2k back for the other 20% ? 

What is the best way to approach that scenario with HMRC to get the extra tax relief if I know I want to contribute that amount at the start of a tax year? Does it become a pain to tweak the amounts year on year? 

Will you actually be a higher rate payer if you are already contributing a lot?

There is no "other 20%" though.  A relief at source contribution to a SIPP increases your basic rate band so any personal tax saving is entirely down to what other taxable income (and types of income) you have in that tax year.

It could be 20%, it could be more than 20%.  It could be 0%.

Thanks. See details above that I would still be in higher rate. I’d basically be shifting my current £9.5k of AVC contributions to instead paying that value into SIPP. Avoiding 42% tax hit. 

If my basic rate band is what shifts as you suggest - how does HMRC know to do that? 

You tell them how much you are contributing to SIPP, they adjust your tax code.

molerat

Firstly esnure your on line tax account shows your correct taxable income from all sources.

Contact HMRC and tell them you are contributing £ gross amount into a SIPP

They will take it from there.

seans_elysees

Thank you all for the comments.  

When I’m planning to switch over to SIPP payments, I’ll contact HMRC and advise them that the I’m planning to pay ‘X’ amount into SIPP over the next tax year. 👍

AlanP_2

seans_elysees said:

Thank you all for the comments.  

When I’m planning to switch over to SIPP payments, I’ll contact HMRC and advise them that the I’m planning to pay ‘X’ amount into SIPP over the next tax year. 👍

Be careful how much £x is, based on our experience with HMRC if it is over £10k then they require confirmation from the SIPP provider that you have made the contribution i.e. at the end of process not before contributing.

My wife was in the same position as you with LGPS / AVC and a separate SIPP. Make it clear to HMRC that your SIPP is a Relief at source scheme unconnected to the LGPS. It took 3 communications with the before the penny dropped at their end and they stopped telling her that her LGPS was a Net Pay scheme and so no additional tax relief was due.


One thing we still can't work out is why you need to claim the additional relief. According to our SIPP provider HMRC are supplied with the name, NI number and gross contribution amount directly by them each time contributions are processed so already have all the information they need to automatically adjust for any more tax relief due.

SacredStephan

AlanP_2 said:

Be careful how much £x is, based on our experience with HMRC if it is over £10k then they require confirmation from the SIPP provider that you have made the contribution i.e. at the end of process not before contributing.

One thing we still can't work out is why you need to claim the additional relief. According to our SIPP provider HMRC are supplied with the name, NI number and gross contribution amount directly by them each time contributions are processed so already have all the information they need to automatically adjust for any more tax relief due.

You should write to HMRC after you make the contribution. I believe they will not accept this information by phone or webchat.
My guess as to why a taxpayer needs to tell HMRC about something that HMRC already knows about is because their internal systems are not linked together.

Marcon

seans_elysees said:

Thank you all for the comments.  

When I’m planning to switch over to SIPP payments, I’ll contact HMRC and advise them that the I’m planning to pay ‘X’ amount into SIPP over the next tax year. 👍

HMRC won't act on what you plan to do (you might not do it!). You need to tell them once you've done it.

You need to actively claim it by telling HMRC, or through a self assessment tax return if you do one.