Too late for SIPP?

Nomunnofun1

jim._2 said:

Dazed_and_C0nfused said:

jim._2 said:

Dazed_and_C0nfused said:

 What criteria does she meet to need to file a return?

If none then she just needs to notify HMRC, probably by letter with evidence but a phone call might work.

I presume you realise that there is no "extra 20%".  This is common misconception.  If she is paying higher rate tax on say £500 then that will limit her higher rate relief, paying say £5,000 (gross) doesn't mean it's an automatic £1,000 tax saving.

There can be additional benefits though, she might become eligible for Marriage Allowance or get an increased savings nil rate band (£1,000 instead of £500).

We're definitely wanting to get the PSA up to £1,000

She's going to be over the £50270 (or £37,700 is maybe a better way to put it assuming £12,570 allowance).

Let's say she'll have income of £52K plus £2K interest totally £54K. The plan would be to put say £4K into s SIPP. Doing this would bring her down to 20% (correct?). It would also increase her PSA to £1K meaning tax would only be payable on £1K (not £1.5K) and at 20%. (doing nothing, some income would be taxed at 40%).

Her tax codes (24/25) are a bit complicated as she has salary up to the summer, then replaced by a work pension and also has some other employment. She has a BR code, an LX code and an adjustment to band amount. She has a now ended salary from her FT job. There's also a deduction for unpaid tax on interest from 23/24 - this was paid this week so presumably will be removed and new tax codes issued soon.

The goal is to get back into the 20% tax band by paying money into a SIPP. We can get a reasonably accurate calculation of all income including bank interest in 24/25. In simplistic terms, my understanding is to put anything over £50K into a SIPP and maybe add an extra £1K to capture some interest or smaller amount if earnings we maybe missed. Will that work? What about the adjustment to rate amount - is there another calculation to factor this in?

Question has moved on a bit, but good to know we just need to tell HMRC and provide some evidence of the amount put into a SIPP. I assume they refund any over tax initially paid on the money paid into the SIPP?

I'm not really sure what you mean by that.

I mean that the money paid into the SIPP (from our bank account after tax has been taken at 40%) will have a refund of the extra 20% tax taken due to being a higher rate tax payer (prior to HMRC being informed of the SIPP payment). The SIPP will bring her back to being at 20% tax payer, so there must be some way to recoup the additional tax on the SIPP payment. 

You seem to have already answered that above, so that's for your patience in explaining that. 

Let’s say that your taxable salary is £3000 over the higher rate threshold and you make a SIPP contribution of £4000. 

This is grossed up to £5000, your 20% relief. 

As a higher rate taxpayer you are due higher rate relief on the gross contribution UP TO the amount chargeable at higher rate - in this case £3000 at 20% - £600, NOT £5000 at 20%. 

jim._2

Dazed_and_C0nfused said:

jim._2 said:

Dazed_and_C0nfused said:

jim._2 said:

Dazed_and_C0nfused said:

 What criteria does she meet to need to file a return?

If none then she just needs to notify HMRC, probably by letter with evidence but a phone call might work.

I presume you realise that there is no "extra 20%".  This is common misconception.  If she is paying higher rate tax on say £500 then that will limit her higher rate relief, paying say £5,000 (gross) doesn't mean it's an automatic £1,000 tax saving.

There can be additional benefits though, she might become eligible for Marriage Allowance or get an increased savings nil rate band (£1,000 instead of £500).

We're definitely wanting to get the PSA up to £1,000

She's going to be over the £50270 (or £37,700 is maybe a better way to put it assuming £12,570 allowance).

Let's say she'll have income of £52K plus £2K interest totally £54K. The plan would be to put say £4K into s SIPP. Doing this would bring her down to 20% (correct?). It would also increase her PSA to £1K meaning tax would only be payable on £1K (not £1.5K) and at 20%. (doing nothing, some income would be taxed at 40%).

Her tax codes (24/25) are a bit complicated as she has salary up to the summer, then replaced by a work pension and also has some other employment. She has a BR code, an LX code and an adjustment to band amount. She has a now ended salary from her FT job. There's also a deduction for unpaid tax on interest from 23/24 - this was paid this week so presumably will be removed and new tax codes issued soon.

The goal is to get back into the 20% tax band by paying money into a SIPP. We can get a reasonably accurate calculation of all income including bank interest in 24/25. In simplistic terms, my understanding is to put anything over £50K into a SIPP and maybe add an extra £1K to capture some interest or smaller amount if earnings we maybe missed. Will that work? What about the adjustment to rate amount - is there another calculation to factor this in?

Question has moved on a bit, but good to know we just need to tell HMRC and provide some evidence of the amount put into a SIPP. I assume they refund any over tax initially paid on the money paid into the SIPP?

I'm not really sure what you mean by that.

I mean that the money paid into the SIPP (from our bank account after tax has been taken at 40%) will have a refund of the extra 20% tax taken due to being a higher rate tax payer (prior to HMRC being informed of the SIPP payment). The SIPP will bring her back to being at 20% tax payer, so there must be some way to recoup the additional tax on the SIPP payment. 

You seem to have already answered that above, so that's for your patience in explaining that. 

I'm not sure you have taken on board that there is no fixed extra 20%.

The SIPP contribution might result in a 20% tax saving. It might be more than 20%.  It might be no tax saving.

You will need to do your own before and after calculations to see the impact and how it might benefit her overall.

I've been basing my thoughts of sites like the following.

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

https://www.bestinvest.co.uk/sipps/understanding-sipp-tax-relief-and-benefits

https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/how-to-claim-higher-rate-tax-relief-on-pension-contributions



I know it says up to and I'm assuming to get exactly £200 extra relief all £800 would need to be from your income that would be taxed at 40%. She wants to make sure she's a 20% tax payer so will build in a margin of error into the SIPP payment and that margin of error won't get the extra relief as it is from the 20% allowance.

jim._2

Nomunnofun1 said:

jim._2 said:

Dazed_and_C0nfused said:

jim._2 said:

Dazed_and_C0nfused said:

 What criteria does she meet to need to file a return?

If none then she just needs to notify HMRC, probably by letter with evidence but a phone call might work.

I presume you realise that there is no "extra 20%".  This is common misconception.  If she is paying higher rate tax on say £500 then that will limit her higher rate relief, paying say £5,000 (gross) doesn't mean it's an automatic £1,000 tax saving.

There can be additional benefits though, she might become eligible for Marriage Allowance or get an increased savings nil rate band (£1,000 instead of £500).

We're definitely wanting to get the PSA up to £1,000

She's going to be over the £50270 (or £37,700 is maybe a better way to put it assuming £12,570 allowance).

Let's say she'll have income of £52K plus £2K interest totally £54K. The plan would be to put say £4K into s SIPP. Doing this would bring her down to 20% (correct?). It would also increase her PSA to £1K meaning tax would only be payable on £1K (not £1.5K) and at 20%. (doing nothing, some income would be taxed at 40%).

Her tax codes (24/25) are a bit complicated as she has salary up to the summer, then replaced by a work pension and also has some other employment. She has a BR code, an LX code and an adjustment to band amount. She has a now ended salary from her FT job. There's also a deduction for unpaid tax on interest from 23/24 - this was paid this week so presumably will be removed and new tax codes issued soon.

The goal is to get back into the 20% tax band by paying money into a SIPP. We can get a reasonably accurate calculation of all income including bank interest in 24/25. In simplistic terms, my understanding is to put anything over £50K into a SIPP and maybe add an extra £1K to capture some interest or smaller amount if earnings we maybe missed. Will that work? What about the adjustment to rate amount - is there another calculation to factor this in?

Question has moved on a bit, but good to know we just need to tell HMRC and provide some evidence of the amount put into a SIPP. I assume they refund any over tax initially paid on the money paid into the SIPP?

I'm not really sure what you mean by that.

I mean that the money paid into the SIPP (from our bank account after tax has been taken at 40%) will have a refund of the extra 20% tax taken due to being a higher rate tax payer (prior to HMRC being informed of the SIPP payment). The SIPP will bring her back to being at 20% tax payer, so there must be some way to recoup the additional tax on the SIPP payment. 

You seem to have already answered that above, so that's for your patience in explaining that. 

Let’s say that your taxable salary is £3000 over the higher rate threshold and you make a SIPP contribution of £4000. 

This is grossed up to £5000, your 20% relief. 

As a higher rate taxpayer you are due higher rate relief on the gross contribution UP TO the amount chargeable at higher rate - in this case £3000 at 20% - £600, NOT £5000 at 20%. 

Yes, that's what I thought. Thanks. Getting it on anything more than £3K would be making money from the govt that you never gave them to start with. 

Dazed_and_C0nfused

jim._2 said:

Nomunnofun1 said:

jim._2 said:

Dazed_and_C0nfused said:

jim._2 said:

Dazed_and_C0nfused said:

 What criteria does she meet to need to file a return?

If none then she just needs to notify HMRC, probably by letter with evidence but a phone call might work.

I presume you realise that there is no "extra 20%".  This is common misconception.  If she is paying higher rate tax on say £500 then that will limit her higher rate relief, paying say £5,000 (gross) doesn't mean it's an automatic £1,000 tax saving.

There can be additional benefits though, she might become eligible for Marriage Allowance or get an increased savings nil rate band (£1,000 instead of £500).

We're definitely wanting to get the PSA up to £1,000

She's going to be over the £50270 (or £37,700 is maybe a better way to put it assuming £12,570 allowance).

Let's say she'll have income of £52K plus £2K interest totally £54K. The plan would be to put say £4K into s SIPP. Doing this would bring her down to 20% (correct?). It would also increase her PSA to £1K meaning tax would only be payable on £1K (not £1.5K) and at 20%. (doing nothing, some income would be taxed at 40%).

Her tax codes (24/25) are a bit complicated as she has salary up to the summer, then replaced by a work pension and also has some other employment. She has a BR code, an LX code and an adjustment to band amount. She has a now ended salary from her FT job. There's also a deduction for unpaid tax on interest from 23/24 - this was paid this week so presumably will be removed and new tax codes issued soon.

The goal is to get back into the 20% tax band by paying money into a SIPP. We can get a reasonably accurate calculation of all income including bank interest in 24/25. In simplistic terms, my understanding is to put anything over £50K into a SIPP and maybe add an extra £1K to capture some interest or smaller amount if earnings we maybe missed. Will that work? What about the adjustment to rate amount - is there another calculation to factor this in?

Question has moved on a bit, but good to know we just need to tell HMRC and provide some evidence of the amount put into a SIPP. I assume they refund any over tax initially paid on the money paid into the SIPP?

I'm not really sure what you mean by that.

I mean that the money paid into the SIPP (from our bank account after tax has been taken at 40%) will have a refund of the extra 20% tax taken due to being a higher rate tax payer (prior to HMRC being informed of the SIPP payment). The SIPP will bring her back to being at 20% tax payer, so there must be some way to recoup the additional tax on the SIPP payment. 

You seem to have already answered that above, so that's for your patience in explaining that. 

Let’s say that your taxable salary is £3000 over the higher rate threshold and you make a SIPP contribution of £4000. 

This is grossed up to £5000, your 20% relief. 

As a higher rate taxpayer you are due higher rate relief on the gross contribution UP TO the amount chargeable at higher rate - in this case £3000 at 20% - £600, NOT £5000 at 20%. 

Yes, that's what I thought. Thanks. Getting it on anything more than £3K would be making money from the govt that you never gave them to start with. 

That is perfectly normal with relief at source pension contributions.

There are lots of people adding £2,880 each year and receiving £720 in basic rate tax relief despite paying no income tax.

There are no doubt a few earning say £12,500 and paying no tax whilst adding £10,000 (net) into a pension and getting £2,500 in pension tax relief!

jim._2

Dazed_and_C0nfused said:

jim._2 said:

Nomunnofun1 said:

jim._2 said:

Dazed_and_C0nfused said:

jim._2 said:

Dazed_and_C0nfused said:

 What criteria does she meet to need to file a return?

If none then she just needs to notify HMRC, probably by letter with evidence but a phone call might work.

I presume you realise that there is no "extra 20%".  This is common misconception.  If she is paying higher rate tax on say £500 then that will limit her higher rate relief, paying say £5,000 (gross) doesn't mean it's an automatic £1,000 tax saving.

There can be additional benefits though, she might become eligible for Marriage Allowance or get an increased savings nil rate band (£1,000 instead of £500).

We're definitely wanting to get the PSA up to £1,000

She's going to be over the £50270 (or £37,700 is maybe a better way to put it assuming £12,570 allowance).

Let's say she'll have income of £52K plus £2K interest totally £54K. The plan would be to put say £4K into s SIPP. Doing this would bring her down to 20% (correct?). It would also increase her PSA to £1K meaning tax would only be payable on £1K (not £1.5K) and at 20%. (doing nothing, some income would be taxed at 40%).

Her tax codes (24/25) are a bit complicated as she has salary up to the summer, then replaced by a work pension and also has some other employment. She has a BR code, an LX code and an adjustment to band amount. She has a now ended salary from her FT job. There's also a deduction for unpaid tax on interest from 23/24 - this was paid this week so presumably will be removed and new tax codes issued soon.

The goal is to get back into the 20% tax band by paying money into a SIPP. We can get a reasonably accurate calculation of all income including bank interest in 24/25. In simplistic terms, my understanding is to put anything over £50K into a SIPP and maybe add an extra £1K to capture some interest or smaller amount if earnings we maybe missed. Will that work? What about the adjustment to rate amount - is there another calculation to factor this in?

Question has moved on a bit, but good to know we just need to tell HMRC and provide some evidence of the amount put into a SIPP. I assume they refund any over tax initially paid on the money paid into the SIPP?

I'm not really sure what you mean by that.

I mean that the money paid into the SIPP (from our bank account after tax has been taken at 40%) will have a refund of the extra 20% tax taken due to being a higher rate tax payer (prior to HMRC being informed of the SIPP payment). The SIPP will bring her back to being at 20% tax payer, so there must be some way to recoup the additional tax on the SIPP payment. 

You seem to have already answered that above, so that's for your patience in explaining that. 

Let’s say that your taxable salary is £3000 over the higher rate threshold and you make a SIPP contribution of £4000. 

This is grossed up to £5000, your 20% relief. 

As a higher rate taxpayer you are due higher rate relief on the gross contribution UP TO the amount chargeable at higher rate - in this case £3000 at 20% - £600, NOT £5000 at 20%. 

Yes, that's what I thought. Thanks. Getting it on anything more than £3K would be making money from the govt that you never gave them to start with. 

That is perfectly normal with relief at source pension contributions.

There are lots of people adding £2,880 each year and receiving £720 in basic rate tax relief despite paying no income tax.

There are no doubt a few earning say £12,500 and paying no tax whilst adding £10,000 (net) into a pension and getting £2,500 in pension tax relief!

Ah, I think I see what you mean now regarding reducing taxable pay vs increasing basic rate tax relief. The effect is the same but how it's achieved is different. 

The reason I was mentioning reducing taxable pay is that I'm using AVCs from my own pay before tax and I see may taxable pay increasing monthly by less since I started the AVC contributions.