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    • marcusjames
    • By marcusjames 6th Mar 18, 2:40 PM
    • 52Posts
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    marcusjames
    Question on using SIPP to reduce tax
    • #1
    • 6th Mar 18, 2:40 PM
    Question on using SIPP to reduce tax 6th Mar 18 at 2:40 PM
    I'm a little confused if SIPP contributions as recorded as gross or net when calculating income tax.


    For example, an employee earns 110,000 and wants to use SIPP contributions to keep salary below 100,000.


    The pension provider will "gross-up" contributions by 20%. So should they make a contribution of 8,000 or 10,000?


    My head says 8,000 but I'm reading some conflicting reports.


    Many thanks.
Page 1
    • Dazed and confused
    • By Dazed and confused 6th Mar 18, 2:48 PM
    • 2,557 Posts
    • 1,226 Thanks
    Dazed and confused
    • #2
    • 6th Mar 18, 2:48 PM
    • #2
    • 6th Mar 18, 2:48 PM
    It is the gross contribution which counts. 8,000 you pay into a SIPP is a 10,000 gross contribution.

    But payments into a SIPP won't change your taxable income at all. (Taxable) income from employment of 110,000 doesn't get reduced to 100,000 just because of a payment into a SIPP.

    Salary is really irrelevant for tax purposes, taxable pay, which is usually itemised on payslips is what matters (for employment income).

    Assuming you are trying to retain your Personal Allowance then you need to Google "adjusted net income" as this sets out how your Personal Allowance is calculated.
    • marcusjames
    • By marcusjames 6th Mar 18, 2:51 PM
    • 52 Posts
    • 15 Thanks
    marcusjames
    • #3
    • 6th Mar 18, 2:51 PM
    • #3
    • 6th Mar 18, 2:51 PM
    Thanks for the response. I had read about adjusted net income but it appeared to include SIPP contributions in the calculation.


    Are you saying that SIPP contributions won't help me retain the personal allowance?
    • Dazed and confused
    • By Dazed and confused 6th Mar 18, 3:08 PM
    • 2,557 Posts
    • 1,226 Thanks
    Dazed and confused
    • #4
    • 6th Mar 18, 3:08 PM
    • #4
    • 6th Mar 18, 3:08 PM
    No, SIPP payments are relevant for adjusted net income but this is calculation used purely for establishing the amount of your Personal Allowance (and one or two other things I think).

    If your P60 showed taxable pay of 110,000 and you made a SIPP payment (gross amount) of 10,000 your taxable income would still be 110,000.

    If you had no other taxable income you would retain your Personal Allowance but are taxed on 110,000 (less Personal Allowance).

    The SIPP payment does however increase the amount of the basic rate (20%) tax band by 10,000 and as a result reduces the amount of 40% tax you would have to pay.

    But your taxable income is still 110,000.
    • xylophone
    • By xylophone 6th Mar 18, 3:20 PM
    • 25,371 Posts
    • 14,967 Thanks
    xylophone
    • #5
    • 6th Mar 18, 3:20 PM
    • #5
    • 6th Mar 18, 3:20 PM
    Try here

    http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest

    You can download the guide in the link.
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