Tax on income and savings

singhini

The question i would be asking myself is "i give HMRC £10,700 and i get to keep £40,000 -----> can i live off £25k and stick £15k into my newly opened SIPP"

Lets say you could afford to stick £15k into a SIPP ------> who them claim £3,750 tax relief ------> you are no longer giving HMRC £10.7K but £7k -------> i suppose my point is i wouldn't worry about being a 40% tax payer, i would look at the TOTAL tax paid in £££££ and try to reduce that

jimjames

Nuggy96 said:

I am due to earn around £1800 in savings interest (ISAs are maxed as well). So this (£48856 + £1800 = £50626. This pushes me above the £50,271 40% tax bracket so then I lose £500 of my PSA and get my interest savings taxed at 40%.

It's a common misconception, even Martin got this wrong!

You don't pay 40% on your savings interest, only the amount above the higher rate band so in your case approx £400 is taxed at higher rate. You will pay tax at 20% and 40% on all the interest over £1800-£500 though.

Nuggy96

Dazed_and_C0nfused said:

Nuggy96 said:

Dazed_and_C0nfused said:

Nuggy96 said:

Dazed_and_C0nfused said:

Nuggy96 said:

Dazed_and_C0nfused said:

Nuggy96 said:

Hi all,

Had a similar query in the past but getting closer/over the 40% tax boundary so become an issue now.

I am currently a top of the band 7 in NHS paying into the NHS pension (10.7%)

So I earn £54,710 p/a minus 10.7% so taxable income of around £48,856.

I am due to earn around £1800 in savings interest (ISAs are maxed as well). So this (£48856 + £1800 = £50626. This pushes me above the £50,271 40% tax bracket so then I lose £500 of my PSA and get my interest savings taxed at 40%.

I am trying to work out ways to avoid this in the most tax-efficient/money gaining efficient way.

I see I can potentially add money into a SIPP manually, but how do I then tell HMRC about this so they don't tax me 40%/reduce my PSA, or is it automatic? I would only add in £1-2000 into a SIPP just to dip back below the boundary so wouldn't be much.

Any help, would be appreciated, thanks in advance

If you don't currently need to file a tax return then you just need to complete this form on gov.uk.  You do not need to file a tax return just to claim pension tax relief.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

How exactly it will work depends entirely on when HMRC deal with your claim for the additional relief. 

HMRC never allow pension tax relief for one tax year in the tax code of a different tax year so if they cannot do it during the tax year then you would get a refund of any overpaid tax after the end of the tax year (paid into your bank account).

If they can do it during the tax year then they will issue a new tax code and you pay a bit less tax each month.  Ensuring your taxable pay on your Personal Tax Account is accurate is key to this being accurate (the £48,856 in your example).

Ahh ok, that website seems a lot simpler than a tax return as not sure how those work. So in terms of steps, I'd:

1)Deposit say £2000 into my Vanguard SIPP
2)Fill out this form, which appears quite simple, to say I've put £2000 into my SIPP

I'm aware that some of my savings interest is variable so what happens if by end of the year my interest dips me below the 40% tax bracket, will this form take that into account?

Thanks

I think you are overcomplicating things a bit.

If you deposit £2,000 into a SIPP that becomes a gross contribution of £2,500 with the basic rate relief added.

Taut does not change your taxable income in any way but it does increase your basic rate band by £2,500 and HMRC will use that increased basic rate band when determining how much savings nil rate band (aka Personal Savings Allowance) you are entitled to.

Apologies, completely new to this, so I may well be,

So if my taxable income+savings interest takes me above the 40% tax bracket, but I put £2000 into SIPP and claim the 20% tax back to get £2500, would that automatically stop my income/savings being taxed at 40% and therefore don't need to complete the form? Is that what you're saying?

Apologies for my stupidity again and thanks

You have completely misunderstood.

If you deposit £2,000 into a SIPP then the pension company will automatically add £500 in basic rate tax relief.  You are not involved in that in any way, there is nothing for you to "claim", the pension company sorts it with HMRC and the money just appears in your pension, upto 6 weeks later.

If you are normally going to be a higher rate payer then you can complete the form on gov.uk to tell HMRC about the SIPP contribution (you don't tell them about the NHS contributions as the yare already taken into account on your payslips and P60).

Once the bit of HMRC that deals with your personal tax position knows about the SIPP contribution then they will take it into account when calculating your final tax liability for that tax year.

If your total taxable income is going to be £50,626 when your increased higher rate threshold is £52,770 then you are someway from being a higher rate payer and you will be entitled to a savings nil rate band of £1,000.  And the remaining £800 of your interest will be taxed at 20%.  Leaving you with a liability of ~£162 (including the tax you would probably owe on your NHS income).

Ahh OK, I think I understand that now. Never manually put money into a SIPP so didn't know the pensions companies did everything automatically (add the 20% and inform HMRC).

Thanks!

You still haven't got It.  

All the pension company does is sort out the basic rate relief.  Which is actually adding 25% to your deposit (which is 20% of the gross contribution).

You have to do the rest by making a claim for any additional relief from HMRC.  That is the only way your basic rate band will be increased and you will get the £1,000 savings nil rate band.

Right so in terms of practical steps:

I put 2k into my vanguard SIPP, Vanguard add in the 25% automatically so turns into £2500

When do I need to claim with HMRC the additional relief?

My worry is let's say the variable savings interest rate drops drastically and my savings interest + salary (post pension) fall below the 40% tax bracket, what happens if I've already claimed?

Or can i claim after I see the tax bill from HMRC in say October 2026? I don't track my savings interest to the penny and can't forecast what it'll be from variable interest rates by the end of the 2025/26 tax year.

Dazed_and_C0nfused

Nuggy96 said:

Dazed_and_C0nfused said:

Nuggy96 said:

Dazed_and_C0nfused said:

Nuggy96 said:

Dazed_and_C0nfused said:

Nuggy96 said:

Dazed_and_C0nfused said:

Nuggy96 said:

Hi all,

Had a similar query in the past but getting closer/over the 40% tax boundary so become an issue now.

I am currently a top of the band 7 in NHS paying into the NHS pension (10.7%)

So I earn £54,710 p/a minus 10.7% so taxable income of around £48,856.

I am due to earn around £1800 in savings interest (ISAs are maxed as well). So this (£48856 + £1800 = £50626. This pushes me above the £50,271 40% tax bracket so then I lose £500 of my PSA and get my interest savings taxed at 40%.

I am trying to work out ways to avoid this in the most tax-efficient/money gaining efficient way.

I see I can potentially add money into a SIPP manually, but how do I then tell HMRC about this so they don't tax me 40%/reduce my PSA, or is it automatic? I would only add in £1-2000 into a SIPP just to dip back below the boundary so wouldn't be much.

Any help, would be appreciated, thanks in advance

If you don't currently need to file a tax return then you just need to complete this form on gov.uk.  You do not need to file a tax return just to claim pension tax relief.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

How exactly it will work depends entirely on when HMRC deal with your claim for the additional relief. 

HMRC never allow pension tax relief for one tax year in the tax code of a different tax year so if they cannot do it during the tax year then you would get a refund of any overpaid tax after the end of the tax year (paid into your bank account).

If they can do it during the tax year then they will issue a new tax code and you pay a bit less tax each month.  Ensuring your taxable pay on your Personal Tax Account is accurate is key to this being accurate (the £48,856 in your example).

Ahh ok, that website seems a lot simpler than a tax return as not sure how those work. So in terms of steps, I'd:

1)Deposit say £2000 into my Vanguard SIPP
2)Fill out this form, which appears quite simple, to say I've put £2000 into my SIPP

I'm aware that some of my savings interest is variable so what happens if by end of the year my interest dips me below the 40% tax bracket, will this form take that into account?

Thanks

I think you are overcomplicating things a bit.

If you deposit £2,000 into a SIPP that becomes a gross contribution of £2,500 with the basic rate relief added.

Taut does not change your taxable income in any way but it does increase your basic rate band by £2,500 and HMRC will use that increased basic rate band when determining how much savings nil rate band (aka Personal Savings Allowance) you are entitled to.

Apologies, completely new to this, so I may well be,

So if my taxable income+savings interest takes me above the 40% tax bracket, but I put £2000 into SIPP and claim the 20% tax back to get £2500, would that automatically stop my income/savings being taxed at 40% and therefore don't need to complete the form? Is that what you're saying?

Apologies for my stupidity again and thanks

You have completely misunderstood.

If you deposit £2,000 into a SIPP then the pension company will automatically add £500 in basic rate tax relief.  You are not involved in that in any way, there is nothing for you to "claim", the pension company sorts it with HMRC and the money just appears in your pension, upto 6 weeks later.

If you are normally going to be a higher rate payer then you can complete the form on gov.uk to tell HMRC about the SIPP contribution (you don't tell them about the NHS contributions as the yare already taken into account on your payslips and P60).

Once the bit of HMRC that deals with your personal tax position knows about the SIPP contribution then they will take it into account when calculating your final tax liability for that tax year.

If your total taxable income is going to be £50,626 when your increased higher rate threshold is £52,770 then you are someway from being a higher rate payer and you will be entitled to a savings nil rate band of £1,000.  And the remaining £800 of your interest will be taxed at 20%.  Leaving you with a liability of ~£162 (including the tax you would probably owe on your NHS income).

Ahh OK, I think I understand that now. Never manually put money into a SIPP so didn't know the pensions companies did everything automatically (add the 20% and inform HMRC).

Thanks!

You still haven't got It.  

All the pension company does is sort out the basic rate relief.  Which is actually adding 25% to your deposit (which is 20% of the gross contribution).

You have to do the rest by making a claim for any additional relief from HMRC.  That is the only way your basic rate band will be increased and you will get the £1,000 savings nil rate band.

Right so in terms of practical steps:

I put 2k into my vanguard SIPP, Vanguard add in the 25% automatically so turns into £2500

When do I need to claim with HMRC the additional relief?

My worry is let's say the variable savings interest rate drops drastically and my savings interest + salary (post pension) fall below the 40% tax bracket, what happens if I've already claimed?

Or can i claim after I see the tax bill from HMRC in say October 2026? I don't track my savings interest to the penny and can't forecast what it'll be from variable interest rates by the end of the 2025/26 tax year.

You have until 5 April 2030 to make a claim for the 2025/26 tax year so no problem waiting until HMRC have reviewed 2025/26 next year.

But you have to make the payment to the SIPP in 2025/26.  A pension contribution you have made in 2026/27 will not help your tax position for 2025/26.