Mechanics of tax rebate for SIPP contributions

ChequeBookGerry

Dear all,

I was wondering if anyone could explain the mechanics of how I get  the tax relief cash on SIPP contributions.  From being self-employed (where I could just use pension contributions as a taxable expense) to being employed, from what I gather, a provider (Hargreaves Landsdown in my case) will add a basic rate amount top up to my contributions, so if I put away £60,000 they'll top it up by £12,000?  OK, but if I pay tax at 45% and state that on my tax return, does the other 25% come back as a refund later or is that also added to my pot by HL?  I'm guessing it's set up like this as it is easy from most taxpayers?

Thanks.

Bobziz

Does this help ? https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Dazed_and_C0nfused

ChequeBookGerry said:

Dear all,

I was wondering if anyone could explain the mechanics of how I get  the tax relief cash on SIPP contributions.  From being self-employed (where I could just use pension contributions as a taxable expense) to being employed, from what I gather, a provider (Hargreaves Landsdown in my case) will add a basic rate amount top up to my contributions, so if I put away £60,000 they'll top it up by £12,000?  OK, but if I pay tax at 45% and state that on my tax return, does the other 25% come back as a refund later or is that also added to my pot by HL?  I'm guessing it's set up like this as it is easy from most taxpayers?

Thanks.

You have gone badly wrong somewhere 😳

Personal pension contributions have never been an allowable expense for someone who is self employed.

And your maths is out.  If you add £60,000 (which qualifies for tax relief) then HL would add 25% to that, making a gross contribution of £75,000.  The basic rate tax relief of £15,000 being 20% of the gross contribution.

If you want to get £60k into your SIPP then you only pay £48k.

There is no fixed "other 25%".  The gross contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.  And this has a knock on effect to the additional rate band.

Any personal tax saving benefits you, it is never added to your pension fund.  There may not be a "refund" as such, it might just reduce your Self Assessment liability.

Marcon

Dazed_and_C0nfused said:

ChequeBookGerry said:

Dear all,

I was wondering if anyone could explain the mechanics of how I get  the tax relief cash on SIPP contributions.  From being self-employed (where I could just use pension contributions as a taxable expense) to being employed, from what I gather, a provider (Hargreaves Landsdown in my case) will add a basic rate amount top up to my contributions, so if I put away £60,000 they'll top it up by £12,000?  OK, but if I pay tax at 45% and state that on my tax return, does the other 25% come back as a refund later or is that also added to my pot by HL?  I'm guessing it's set up like this as it is easy from most taxpayers?

Thanks.

And your maths is out.  If you add £60,000 (which qualifies for tax relief) then HL would add 25% to that, making a gross contribution of £75,000.  The basic rate tax relief of £15,000 being 20% of the gross contribution.

... and that would exceed the Annual Allowance, which limits you to £60K of tax-relievable contributions per year (your personal contributions + basic rate tax relief, + any employer contribution), unless you have scope to use 'carry forward': https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

ChequeBookGerry

Dazed_and_C0nfused said:

ChequeBookGerry said:

Dear all,

I was wondering if anyone could explain the mechanics of how I get  the tax relief cash on SIPP contributions.  From being self-employed (where I could just use pension contributions as a taxable expense) to being employed, from what I gather, a provider (Hargreaves Landsdown in my case) will add a basic rate amount top up to my contributions, so if I put away £60,000 they'll top it up by £12,000?  OK, but if I pay tax at 45% and state that on my tax return, does the other 25% come back as a refund later or is that also added to my pot by HL?  I'm guessing it's set up like this as it is easy from most taxpayers?

Thanks.

You have gone badly wrong somewhere 😳

Personal pension contributions have never been an allowable expense for someone who is self employed.

And your maths is out.  If you add £60,000 (which qualifies for tax relief) then HL would add 25% to that, making a gross contribution of £75,000.  The basic rate tax relief of £15,000 being 20% of the gross contribution.

If you want to get £60k into your SIPP then you only pay £48k.

There is no fixed "other 25%".  The gross contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.  And this has a knock on effect to the additional rate band.

Any personal tax saving benefits you, it is never added to your pension fund.  There may not be a "refund" as such, it might just reduce your Self Assessment liability.

I have a limited company.

ChequeBookGerry

Bobziz said:

Does this help ? https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Thanks.  As I suspected - HL add a bit directly and the rest gets claimed as cash via the tax return.  

DRS1

ChequeBookGerry said:

Dazed_and_C0nfused said:

ChequeBookGerry said:

Dear all,

I was wondering if anyone could explain the mechanics of how I get  the tax relief cash on SIPP contributions.  From being self-employed (where I could just use pension contributions as a taxable expense) to being employed, from what I gather, a provider (Hargreaves Landsdown in my case) will add a basic rate amount top up to my contributions, so if I put away £60,000 they'll top it up by £12,000?  OK, but if I pay tax at 45% and state that on my tax return, does the other 25% come back as a refund later or is that also added to my pot by HL?  I'm guessing it's set up like this as it is easy from most taxpayers?

Thanks.

You have gone badly wrong somewhere 😳

Personal pension contributions have never been an allowable expense for someone who is self employed.

And your maths is out.  If you add £60,000 (which qualifies for tax relief) then HL would add 25% to that, making a gross contribution of £75,000.  The basic rate tax relief of £15,000 being 20% of the gross contribution.

If you want to get £60k into your SIPP then you only pay £48k.

There is no fixed "other 25%".  The gross contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.  And this has a knock on effect to the additional rate band.

Any personal tax saving benefits you, it is never added to your pension fund.  There may not be a "refund" as such, it might just reduce your Self Assessment liability.

I have a limited company.

Who is making the pension contributions?  You or the company.  The comments assume the contribution comes from you.  It is not the same if the contribution comes from the company.

Albermarle

ChequeBookGerry said:

Bobziz said:

Does this help ? https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Thanks.  As I suspected - HL add a bit directly and the rest gets claimed as cash via the tax return.  

HL add 25% to give you your basic rate tax relief and any extra relief due will be paid to you directly. For the following year HMRC will adjust your tax code on the assumption that you will pay the same amount in . So you will pay less tax each month and no need for a rebate.
If you have a Ltd company it is usually more tax efficient to pay into your pension from there, but it depends on the exact circumstances.

Dazed_and_C0nfused

ChequeBookGerry said:

Dazed_and_C0nfused said:

ChequeBookGerry said:

Dear all,

I was wondering if anyone could explain the mechanics of how I get  the tax relief cash on SIPP contributions.  From being self-employed (where I could just use pension contributions as a taxable expense) to being employed, from what I gather, a provider (Hargreaves Landsdown in my case) will add a basic rate amount top up to my contributions, so if I put away £60,000 they'll top it up by £12,000?  OK, but if I pay tax at 45% and state that on my tax return, does the other 25% come back as a refund later or is that also added to my pot by HL?  I'm guessing it's set up like this as it is easy from most taxpayers?

Thanks.

You have gone badly wrong somewhere 😳

Personal pension contributions have never been an allowable expense for someone who is self employed.

And your maths is out.  If you add £60,000 (which qualifies for tax relief) then HL would add 25% to that, making a gross contribution of £75,000.  The basic rate tax relief of £15,000 being 20% of the gross contribution.

If you want to get £60k into your SIPP then you only pay £48k.

There is no fixed "other 25%".  The gross contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.  And this has a knock on effect to the additional rate band.

Any personal tax saving benefits you, it is never added to your pension fund.  There may not be a "refund" as such, it might just reduce your Self Assessment liability.

I have a limited company.

Where does being self employed fit into things then?

Marcon

Albermarle said:

ChequeBookGerry said:

Bobziz said:

Does this help ? https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Thanks.  As I suspected - HL add a bit directly and the rest gets claimed as cash via the tax return.  

HL add 25% to give you your basic rate tax relief and any extra relief due will be paid to you directly. For the following year HMRC will adjust your tax code on the assumption that you will pay the same amount in . So you will pay less tax each month and no need for a rebate.
If you have a Ltd company it is usually more tax efficient to pay into your pension from there, but it depends on the exact circumstances.

...in particular the company needs to have both the ability (ie it's making a profit) and the cash...