how easy is it to open a SIPP and use carry forward allowance?

mrklaw

currently I’m putting around 40k a year into my workplace pension. previous years more like 35k. I have a 43k in a cash ISA that I don’t need for at least 3 years, and even then not all of it. that would be after our planned retirement date.

so I’m considering whether to try and push it into a SIPP. 25% boost from HMRC, possibly some in VWRP, some in bonds.

I’ve never thought about this before - only ever contributing whats come from my salary. How does it even work? and can it work in a SIPP? Can I just go ‘hey Vanguard, let me whack 40k in a SIPP oh its ok thats over 60k but less than my overall gross salary and I have spare change from last year’? how would they know. do I need to do some HMRC nonsense?

Still toying with it as it may be easier to just transfer it to a S&S ISA, I’m not sure the 25% in/15% out arbitrage is worth the loss of flexibility but its something I’ll model

QrizB

Can I just go ‘hey Vanguard, let me whack 40k in a SIPP

Yes you can.

how would they know

They don't know or really care, it's your problem not theirs.

Storcko14

HMRC will check though using the administrators' AFT reporting amongst other things.

Marcon

I’ve never thought about this before - only ever contributing whats come from my salary. How does it even work? and can it work in a SIPP? Can I just go ‘hey Vanguard, let me whack 40k in a SIPP oh its ok thats over 60k but less than my overall gross salary and I have spare change from last year’?

Opening a SIPP is easy. Carry forward, as so many threads on this board demonstrate, is rather less so.

You need to take into account your personal contributions + basic rate tax relief + the employer contribution when working out how much of the annual allowance you've used in a tax year. You might well have the necessary headroom to use carry forward, but be aware there's a hefty tax charge if you get it wrong.

dunstonh

I’ve never thought about this before - only ever contributing whats come from my salary. How does it even work? and can it work in a SIPP? Can I just go ‘hey Vanguard, let me whack 40k in a SIPP oh its ok thats over 60k but less than my overall gross salary and I have spare change from last year’? how would they know. do I need to do some HMRC nonsense?

It's not for the provider to police your contributions. It is your responsibility under self-assessment. HMRC monitors it via your NI number. So if you exceed your contribution allowances, expect HMRC to come back to you. If you don't, then all good and well. So just make sure your calculations are noted and stored should you be asked for them. And of course make sure that they're correct.

Providers will just accept the contribution that you tell them.

DavidT67

https://forums.moneysavingexpert.com/discussion/comment/81999116#Comment_81999116

Well the tax charge is only at your marginal income tax rate, so not really hefty or punitive.

Also worth mentioning that you can usually pay the tax charge from within your pension pot, which means it comes from gross income rather than net post tax income.

af1963

A few years ago, when I was making large contributions, I did actually receive a letter from the pension provider, Standard Life, telling me I was exceeding the annual allowance limit (£40k at the time). But it was purely for info, and the letter also explained that this was OK as long as I had previous years unused annual allowance to carry forward, which I did. They also included a note of my past few years contributions, which I knew anyway but would be useful for checking.

So some providers do check.

But they only have access to payments made into their own scheme and can't know about separate schemes, SIPPs etc.

Marcon

Also worth mentioning that you can usually pay the tax charge from within your pension pot, which means it comes from gross income rather than net post tax income.

Provided you owe at least £2,000 in tax, otherwise it's up to the pension provider to decide whether or not to give you that option.

hugheskevi

https://forums.moneysavingexpert.com/discussion/comment/82000781#Comment_82000781

That was a Pension Saving Statement, setting out your pension input to the scheme in the relevant year and the previous 3 years.

It is a statutory requirement for schemes to issue these to anyone with a pension input that exceeds the Annual Allowance, so all schemes will be checking this and issuing similar communications where required.