Tax relief question re. annual allowance

Aylesbury_Duck

I'm trying to work out how much SIPP contribution I should make at the end of the current tax year to maximise the £60k allowance.  For 2025-26:

Salary: £99,486  (made up from two employments in the year)
LGPS growth estimate:  £23,412 (both employments are LGPS)
AVCs: £18,000 (taken from salary before tax, so full relief already in place)

So I make that  £41,412 of total contribution.  I have no unused allowance from the last three years, so that leaves me with £18,588 of headroom.

I plan to make a contribution to my SIPP before the tax year-end to top up to the £60k limit.  My SIPP provider (Vanguard) will add basic rate tax relief, and I will claim the additional relief through self-assessment after year-end.  What should my SIPP contribution be to ensure I use the full £60k of my annual allowance?  Is it c.£15,000 which with basic relief would be £18,750?  Do I need to factor in the higher rate tax relief and therefore make a lower SIPP contribution, or does that tax relief "come back to me" in the form of a more generous tax code for 2026-27?

NoMore

It’s what ends up in the pension that counts. So if you’re contributing using relief at source, you put 80% of what you want in, the other 20% (which will be 25% of your contribution) claimed as basic tax relief by the pension on your behalf. Any further tax relief due to you, you claim from HMRC yourself. 

af1963

Pay in 80% of the gross contribution, it will be topped up to 100% by the SIPP provider. The gross contribution will also increase your basic rate band for the current year which means that up to an extra 18750 ( if you have sufficient income being taxed at 40%) will be in the basic 20% band instead of 40% so you'll be due to pay less tax this year.

If you end up having overpaid this year ( e.g. if you make the pension payment right at the end so you are certain of your annual income) you can claim back the overpayment.

zagfles

Your issue is you probably won't be certain of the LGPS PIA till after the end of the tax year. Unless you've worked it out accurately and are confident in your calculations.

If you're not certain of it, you could always err on undercontributing, and use carry forwards next year to pay in any undercontribution. That assumes you'll carry on earning at a similar level next tax year. 

Aylesbury_Duck

Thank you both, very helpful.

zagfles

af1963 said:

Pay in 80% of the gross contribution, it will be topped up to 100% by the SIPP provider. The gross contribution will also increase your basic rate band for the current year which means that up to an extra 18750 ( if you have sufficient income being taxed at 40%) will be in the basic 20% band instead of 40% so you'll be due to pay less tax this year.

If you end up having overpaid this year ( e.g. if you make the pension payment right at the end so you are certain of your annual income) you can claim back the overpayment.

Where do you get that from? Unless the rules have changed since I've been in hibernation, you can't reclaim excess contributions over the annual allowance. (you can for conts over the tax relief limit, but that's not applicable here, OP will be well within the tax relief limit, it's the AA they might exceed). 

Aylesbury_Duck

zagfles said:

Your issue is you probably won't be certain of the LGPS PIA till after the end of the tax year. Unless you've worked it out accurately and are confident in your calculations.

If you're not certain of it, you could always err on undercontributing, and use carry forwards next year to pay in any undercontribution. That assumes you'll carry on earning at a similar level next tax year. 

Yes, I got caught out with that in a previous year. I've taken the approach that it's better to slightly overshoot the allowance and take a tax code hit, rather than underdo it.  I may reduce to 0.8FTE at some point in the next couple of years, so I think overshooting slightly is the right approach?