Sanity check SIPP contributions and 40% tax threshold

Mikey481

Sanity check please I’ve been mulling over my SIPP contributions as a tax efficient way to reduce tax burden.
Long story short estimated combined pension/salary/savings interest/dividends for 2025/2026 of £57500.
Will be making a SIPP contribution of £6000 net £7500 gross in January
This is where I need the sanity check obviously this will increase my personal allowance such that I will pay 20% tax on all income but can I reclaim the extra 20% on pension contributions above £50270
Apologies if this is a stupid question just need someone to say if it is !!!!

Dazed_and_C0nfused

Mikey481 said:

Sanity check please I’ve been mulling over my SIPP contributions as a tax efficient way to reduce tax burden.
Long story short estimated combined pension/salary/savings interest/dividends for 2025/2026 of £57500.
Will be making a SIPP contribution of £6000 net £7500 gross in January
This is where I need the sanity check obviously this will increase my personal allowance such that I will pay 20% tax on all income but can I reclaim the extra 20% on pension contributions above £50270
Apologies if this is a stupid question just need someone to say if it is !!!!

From the information provided it won't have any impact on your Personal Allowance.

But it will increase your basic rate band from £50,270 to £57,770.

There isn't a set extra 20% though.  The higher rate tax saving will depend on what the split of income is between these three elements,

Pension/earnings
Interest
Dividends

Mikey481

Dazed_and_C0nfused said:

Mikey481 said:

Sanity check please I’ve been mulling over my SIPP contributions as a tax efficient way to reduce tax burden.
Long story short estimated combined pension/salary/savings interest/dividends for 2025/2026 of £57500.
Will be making a SIPP contribution of £6000 net £7500 gross in January
This is where I need the sanity check obviously this will increase my personal allowance such that I will pay 20% tax on all income but can I reclaim the extra 20% on pension contributions above £50270
Apologies if this is a stupid question just need someone to say if it is !!!!

From the information provided it won't have any impact on your Personal Allowance.

But it will increase your basic rate band from £50,270 to £57,770.

There isn't a set extra 20% though.  The higher rate tax saving will depend on what the split of income is between these three elements,

Pension/earnings
Interest
Dividends

Split is
Salary 25800
Pension £30500
Savings interest £450
Dividends £750

Albermarle

Mikey481 said:

Sanity check please I’ve been mulling over my SIPP contributions as a tax efficient way to reduce tax burden.
Long story short estimated combined pension/salary/savings interest/dividends for 2025/2026 of £57500.
Will be making a SIPP contribution of £6000 net £7500 gross in January
This is where I need the sanity check obviously this will increase my personal allowance such that I will pay 20% tax on all income but can I reclaim the extra 20% on pension contributions above £50270
Apologies if this is a stupid question just need someone to say if it is !!!!

As said it will not affect your personal allowance.
The SIPP provider will add 25% to your contribution as basic rate tax relief, which they will claim from HMRC ( you do not have to do anything).
If you think you are eligible for higher rate tax relief, then you need to inform HMRC of your gross ( including the tax relief) contributions. Any extra tax relief due will be paid back to you directly, not to your pension.

As you have employment income, do you not already contribute to a workplace pension? or are yous elf employed maybe ?

Mikey481

Albermarle said:

Mikey481 said:

Sanity check please I’ve been mulling over my SIPP contributions as a tax efficient way to reduce tax burden.
Long story short estimated combined pension/salary/savings interest/dividends for 2025/2026 of £57500.
Will be making a SIPP contribution of £6000 net £7500 gross in January
This is where I need the sanity check obviously this will increase my personal allowance such that I will pay 20% tax on all income but can I reclaim the extra 20% on pension contributions above £50270
Apologies if this is a stupid question just need someone to say if it is !!!!

As said it will not affect your personal allowance.
The SIPP provider will add 25% to your contribution as basic rate tax relief, which they will claim from HMRC ( you do not have to do anything).
If you think you are eligible for higher rate tax relief, then you need to inform HMRC of your gross ( including the tax relief) contributions. Any extra tax relief due will be paid back to you directly, not to your pension.

As you have employment income, do you not already contribute to a workplace pension? or are yous elf employed maybe ?

Albermarle said:

Mikey481 said:

Sanity check please I’ve been mulling over my SIPP contributions as a tax efficient way to reduce tax burden.
Long story short estimated combined pension/salary/savings interest/dividends for 2025/2026 of £57500.
Will be making a SIPP contribution of £6000 net £7500 gross in January
This is where I need the sanity check obviously this will increase my personal allowance such that I will pay 20% tax on all income but can I reclaim the extra 20% on pension contributions above £50270
Apologies if this is a stupid question just need someone to say if it is !!!!

As said it will not affect your personal allowance.
The SIPP provider will add 25% to your contribution as basic rate tax relief, which they will claim from HMRC ( you do not have to do anything).
If you think you are eligible for higher rate tax relief, then you need to inform HMRC of your gross ( including the tax relief) contributions. Any extra tax relief due will be paid back to you directly, not to your pension.

As you have employment income, do you not already contribute to a workplace pension? or are yous elf employed maybe ?

Thanks for the information no I was only employed in April and left on an early incentivised retirement scheme.
So I could still claim the extra 20% tax relief  on income above £50270 ?

sheramber

If you are no longer employed you may not be able to pay in. £6000.

Mikey481

sheramber said:

If you are no longer employed you may not be able to pay in. £6000.

Even though those earnings are in this financial year ?

Albermarle

Mikey481 said:

sheramber said:

If you are no longer employed you may not be able to pay in. £6000.

Even though those earnings are in this financial year ?

It is a bit confusing. You say you left employment just maybe 3 weeks into the tax year, but in that time you earned over £25K . Is that correct ?

Mikey481

Albermarle said:

Mikey481 said:

sheramber said:

If you are no longer employed you may not be able to pay in. £6000.

Even though those earnings are in this financial year ?

It is a bit confusing. You say you left employment just maybe 3 weeks into the tax year, but in that time you earned over £25K . Is that correct ?

Yes that’s correct it was an incentive scheme for those of a certain age !!
Not a redundancy. Due to being in receipt of an occupational pension the figure that my employer had to pay to achieve the net figure (£15000 tax code BR) resulted in a gross figure as in my original post. HMRC assumed that this would be effectively 1/12th of annual salary. So not only did I pay HRT also 45%.
A unique situation I know bearing in mind that I actually didn’t pay the tax as such my company did to achieve the net figure.
I have spoken to an ex colleague a tax consultant who has confirmed what I proposed to do is permissible so win win.