SIPP withdrawals and Gift Aid

aroominyork

If I make charity donations, is it correct that:

• they qualify for Gift Aid if I have paid sufficient tax on SIPP withdrawals, ie not on other sources of income?
• the amount I can withdraw from my SIPP while paying basic (not higher) rate tax is increased by the grossed up donation amount, ie for 1257L with £4000 net contributions, the limit rises from £50,270 to £55,270?

Dead_keen

1. Sort of. You must have paid any UK income tax or CGT, not just taxed on your pension income. If you haven't paid sufficient tax, it is still gift aid but you have to pay the tax shortfall to HMRC. For example, you pay £4,000 to a charity, it claims back £1,000, you have paid £850 of income tax, £50 of CGT and so have to pay HMRC a furtehr £100.
2. Yes.

aroominyork

But tax on SIPP withdrawals is income tax, isn't it, so if my only income is £67,850 of crystallised SIPP withdrawals taxed at 20% (some might be taxed at 40% but ignore that for this illustration), I have a tax liability of £13,570 and after applying 1257L I would pay the sufficient £1000 tax?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82057416#Comment_82057416

I may not have understood this but it reads to me as if you are saying that a tax code of 1257L means £12570 of tax is deducted from your tax bill (13570 - 12570 = 1000 of tax). That doesn't sound right to me. The 12570 gets deducted from the 67850 to give 55280 which at 20% tax (ignoring higher rate) gives you 11056 of tax so plenty to cover 1000 of gift aid payments

aroominyork

https://forums.moneysavingexpert.com/discussion/comment/82057766#Comment_82057766

Yes, of course. That's what happens when you stop receiving a salary and thinking about tax codes. So crystallised withdrawals of £17,570 would be sufficient to cover the £1000 of gift aided tax.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82057889#Comment_82057889

Yes (and you are right I should have said gift aid tax not gift aid payment)