Claiming additional tax relief

Dazed_and_C0nfused

Jami74 said:

Dazed_and_C0nfused said:

And you are never going to get that back via a tax code adjustment.  You need to provide HMRC with the details and then later this summer when they review your overall tax position for 2024-25 they will send you a calculation of any tax overpaid and you can transfer the refund into your bank account.

Oh a refund is even better! Thank-you so much for being so patient with me about this.

Earnings and interest are the only two things to consider. So as I understand it, the aim is to keep taxable earnings below £50,270 (by adding taxable earnings over this into my SIPP). And once I've told them I have added money to the SIPP they'll calculate a refund taking into account the savings interest too.

(I am aware that 80%, or even 60% of something is better than 100% of nothing but I am quite close to the thresholds and as I've spent the last few years getting great pleasure in saving a few extra pounds here and there in interest, cashback, surveys etc it makes sense to continue in the same vain with saving a few on my income if I can.)

You cannot reduce your taxable income by contributing to a SIPP, you can just change the the rates the income is taxed at.  And also how much savings nil rate band you get (0/500/1000).

If you wanted to reduce your taxable income you would have to earn less, get less interest or use a different method for getting money into a pension.  But contributions to a SIPP can usually have the same end result, it's just more complicated than having less income is.

What do you think the mix of taxable earnings and interest is likely to be?

Jami74

Dazed_and_C0nfused said:

What do you think the mix of taxable earnings and interest is likely to be?

So an estimate up until end of March is £1,085. I have just moved £9,000 from 6% accounts into Cash ISA (4.9%) which I am hoping will take it to just under £1000 interest until end of March. Earnings are challenging because they vary month by month due to unsociable hours but estimating it as £54,335 after pension (NHS) deductions. 

Edited to add: £55,335 - £50,270 = £5,065 taxable at 40%
Wait, do I add 80% of £5,065 to my SIPP? £4,052 - 20% relief at source added and a letter to HMRC requesting 20%
Then because earnings under £50,270 interest up to £1,000 taxed at nil rate?

Dazed_and_C0nfused

Jami74 said:

Dazed_and_C0nfused said:

What do you think the mix of taxable earnings and interest is likely to be?

So an estimate up until end of March is £1,085. I have just moved £9,000 from 6% accounts into Cash ISA (4.9%) which I am hoping will take it to just under £1000 interest until end of March. Earnings are challenging because they vary month by month due to unsociable hours but estimating it as £54,335 after pension (NHS) deductions. 

Edited to add: £55,335 - £50,270 = £5,065 taxable at 40%
Wait, do I add 80% of £5,065 to my SIPP? £4,052 - 20% relief at source added and a letter to HMRC requesting 20%
Then because earnings under £50,270 interest up to £1,000 taxed at nil rate?

You don't appear to have understood my previous post.  Contributing to a SIPP cannot reduce your taxable income.

But irrespective of that using your figures you need two calculations, firstly how much savings nil rate band is due.  

Before explaining that though maybe you would like to settle on what your estimated income will be?  In your post above it is either £55,420 or £55,335 - which is it?

And what is the gross SIPP contribution you would like to make?

Jami74

Sorry for being so hard work. I am honestly not being ignorant on purpose. And I really appreciate your help.

Taxable income from salary £54,335.
Interest from savings £1,000.

I would like to put an amount into SIPP which would allow me to not get a tax bill on the £1,000 interest from savings if possible. 

Dazed_and_C0nfused

Jami74 said:

Sorry for being so hard work. I am honestly not being ignorant on purpose. And I really appreciate your help.

Taxable income from salary £54,335.
Interest from savings £1,000.

I would like to put an amount into SIPP which would allow me to not get a tax bill on the £1,000 interest from savings if possible. 

And what do you think that might be?  An actual figure I can work with.

Jami74

Dazed_and_C0nfused said:

And what do you think that might be? An actual figure I can work with.

Oh I don't know. I thought it would be an actual calculation. Eg putting £x amount into SIPP for the purpose of claiming tax relief so that it wouldn't feel like I was paying £200 tax on my savings interest.

It's obviously far more complicated than my little brain can handle so in preparation for the 25/26 tax year I'll move all my savings into Cash ISA and for this tax year I'll put a bit into the SIPP which may or may not get me some tax refund.

Dazed_and_C0nfused

Jami74 said:

Dazed_and_C0nfused said:

And what do you think that might be? An actual figure I can work with.

Oh I don't know. I thought it would be an actual calculation. Eg putting £x amount into SIPP for the purpose of claiming tax relief so that it wouldn't feel like I was paying £200 tax on my savings interest.

It's obviously far more complicated than my little brain can handle so in preparation for the 25/26 tax year I'll move all my savings into Cash ISA and for this tax year I'll put a bit into the SIPP which may or may not get me some tax refund.

It is an actual calculation but as a forum for free help I don't think you should expect someone to do several calculations to find the sweet spot.

If you were willing to provide a single figure (of the gross SIPP contributions) then I would have used that to see the impact and you would have a good idea of how much was needed to meet your objective.

One thing I would say is I personally would not be so focused on the specific amount, once you have a better idea of how it works it is, in my opinion, always better to err on the cautious side in case there was say an unexpected late interest payment or your final pay was more than you had estimated.

Worse case scenario you have a bigger pension fund, some of which only benefitted from basic rate relief.  Which your older self will appreciate 😉

Jami74

Yes thanks, I wasn't expecting someone to do the hard work for me, I'm just struggling to work out the calculation.

I think if I put £4,052 in SIPP it would gross up to £5,065 which equals taxable salary plus interest minus £50,270. And based on that I could/might? get a tax refund of £1,013 after I've informed HMRC.

Obviously the numbers are estimates because I won't know the exact amount of taxable salary and interest until the end of the year, so was thinking I'd contribute £5,000 to SIPP and hope that was enough. But if I've missed understood the net/gross contribution thing then maybe I need to put £6,000 into SIPP but I will find that more challenging. I run a tight budget so it's not like I've got a few grand spare sitting around for this purpose, but I can jiggle things around a bit.

Dazed_and_C0nfused

Jami74 said:

Yes thanks, I wasn't expecting someone to do the hard work for me, I'm just struggling to work out the calculation.

I think if I put £4,052 in SIPP it would gross up to £5,065 which equals taxable salary plus interest minus £50,270. And based on that I could/might? get a tax refund of £1,013 after I've informed HMRC.

Obviously the numbers are estimates because I won't know the exact amount of taxable salary and interest until the end of the year, so was thinking I'd contribute £5,000 to SIPP and hope that was enough. But if I've missed understood the net/gross contribution thing then maybe I need to put £6,000 into SIPP but I will find that more challenging. I run a tight budget so it's not like I've got a few grand spare sitting around for this purpose, but I can jiggle things around a bit.

£4,052 into the SIPP would indeed gross up to £5,065.

The nil rate band calculation would then, on total income of £55,335, be,

£55,335 less Personal Allowance £12,570 = £42,765 income to be taxed.

Extended basic rate band is £42,765 so as nothing falls into the higher rate band I think you would have £1,000 interest taxed at 0%.  Personally I think trying to do it so close to the wire is a recipe for problems, a bit of margin with extra SIPP contribution would seem sensible to me.

Anyway, then your actual tax liability would be 

£55,335 less Personal Allowance £12,570 = £42,765 income to be taxed

£41,765 x 20% (basic rate) = £8,353
£1,000 x 0% (savings nil rate within remaining basic rate band) = £0
Total liability £8,353

Without the SIPP contribution you would clearly be a higher rate payer and have liability of,

£55,335 less Personal Allowance £12,570 = £42,765 income to be taxed

£37,700 x 20% (basic rate) = £7,540
£4,065 x 40% (higher rate) = £1,626

£500 x 0% (savings nil rate in higher rate band) = £0
£500 x 40% (savings higher rate) = £200

Total liability £9,366


Personal tax saving £1,013

Jami74

Thank-you! I understand it better laid out the way you have done it. It makes it easier to understand. I'll put money in this month and next.

I didn't expect to get close to higher rate tax rate this year. From April onwards I'll be making regular SIPP contributions so will be less rushed next year.