SIPP reducing income for tax purposes

kitty5

I pay into a Aviva SIPP that is uplifted by 20% by the provider.

I also pay into LGPS a with my employer.

The contributions added together leave me with around 6000 a year.

In addition to this I have interest from savings of around 7000 per annum. I have realised that I am paying tax on some of the interest. My tax code has been changed to account for this.
Is this correct? Surely with only 6000 income after pension contributions and 7000 interest from savings that would only just exceed my personal allowance leaving me with most of my interest from savings?
Hope this makes sense. Thanks in advance

QrizB

Your SIPP contributions don't reduce your income for tax purposes. That's why you receive tax relief on them.

It's as simple as that.

DRS1

Is any tax actually being deducted from your pay?

There are plenty of threads on the cutting tax board where HMRC have made an adjustment to the tax code for interest which doesn't make sense to the poster but can be remedied (if necessary) by putting the correct figures into your Personal Tax Account. But if no tax is actually being deducted then no need to bother with that.

Marcon

I pay into a Aviva SIPP that is uplifted by 20% by the provider.

As QuizB says, contributions to a SIPP don't reduced your income tax purposes because you've already had basic rate tax relief.

The SIPP provider claims basic rate tax relief from HMRC on your behalf and adds that to your 'pot' - another 25% on top of whatever you've paid, because tax relief is based on the gross contribution (ie the amount you pay in + basic rate tax relief).

It's not easy to get your head round pensions…. If you re-visit your thread of a year ago when you effectively asked the same question, the reply then - including the further information when someone else asked questions - could help to further clarify.

kitty5

thanks everyone. I think I understand now.
I don’t know why I find it difficult to understand tax and pensions!

Thanks

af1963

What's your total work income (ignoring the SIPP contributions) ? And tax code ?

As @DRS1 mentions above, if they know you receive taxable interest, they might reduce the tax code allocated to your work. But if the resulting tax code still more than covers your work income, no tax will end up being deducted.

Allowances for interest income are fairly complicated, with extra allowances available if you don't have much other income. You could have:

a standard tax free allowance £12570 which can be used for any income source

an extra £5000 Starting Rate allowance for interest, reduced by £1 for every £1 of other income above £12570

the standard-rate personal savings allowance of £1000

With exactly £7000 of interest income, it's possible that no tax is actually due if your work income is under £11570 gross. £1k of interest income covered by the remaining unused tax allowance above your salary, then £5k and £1k by the two interest allowances.

Baldytyke88

https://forums.moneysavingexpert.com/discussion/6670664/sipp-reducing-income-for-tax-purposes

You don't say how old you are, I am 64 and I have just started paying into an AVC with WYPF.

I should have done it a year or two sooner, I save on income tax and national insurance.