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Posted Sat, 06 Apr 2024 20:00:34 GMT by lb320
Hello, I am looking to get clarity on the tax treatment of paying into a SIPP when earnings are in the threshold for the personal allowance reduction (£100k-125k). Say for example I earned £115k during the tax year, paying tax via PAYE of £36,432 (£5,070 @ 0%; £37,700 @ 20%; £72,230 @ 40%) during the tax year but then wanted to pay into a SIPP to reduce my taxable income at the end of the tax year: - Pay £12,000 into a SIPP and automatically receive the £3,000 (20%) government bonus to get total personal pension contribution of £15,000 for the tax year - Taxable income reduced to £100,000 on my self assessment (£115,000 of salary minus £15,000 of pension contribution) - Tax therefore should have been £27,432 (£12,570 @ 0%; £37,700 @ 20%; £49,730 @ 40%) for the tax year - Entitled to a tax rebate of £9,000 for the tax overpaid via PAYE during the year (£36,432 - £37,432) - Entitled to an additional tax rebate of £3,000 to account for being on the higher rate but only getting the automatic 20%/£3,000 SIPP bonus - Final position: total tax rebate is £12,000 and total amount in the SIPP in £15,000
Posted Wed, 17 Apr 2024 08:00:56 GMT by HMRC Admin 32

Please have a look at the guidance at:

Pension schemes rates

For 2023 to 2024 and 2024 to 2025 you can pay up to £60000 into your pension scheme and recieve tax relief on the payments.  

The guidance below, advises that you deduct most pension payments when working out your adjusted net income, when working out the reduction to personal allowances and high income child benefit charge (HICBC).

Personal Allowances: adjusted net income

Thank you.
Posted Wed, 17 Apr 2024 09:45:35 GMT by lb320
Hello, Thanks for those links HMRC Admin 32. I am happy from the links that in the scenario above, total pension contributions would be below £60k for the year, and that I would be able to take off the 'grossed up' £15,000 for the SIPP pension contribution which would leave adjusted net income at £100k. The bit I am still unclear about is the tax rebates that would then be available on a self assessment. With taxable income at £100k, I believe I would be entitled to a tax rebate of £9,000 for the tax overpaid throughout the year via PAYE (£36,432 - £27,432). The bit I am unclear about is whether there is then a further rebate for being on the higher tax rate (40%) but only getting the automatic basic rate 20%/£3,000 SIPP bonus from the pension provider. By my calculations, I would get another £3,000 rebate to account for being on the higher rate so that of the SIPP contribution I would make after rebate is £9k out of the £15k final amount. In this scenario (keeping it basic so not including anything else ie. child benefits or gift aid) would the rebate be £9k, £12k or a different figure entirely and why? Thanks
Posted Mon, 29 Apr 2024 08:11:31 GMT by HMRC Admin 5
Hi lb320

If the pension contributions are taken from your net wage and you are a higher rate taxpayer 40% then you can claim the additional 20% relief on the pension.
This would then be added to any refund you were due from your PAYE income. When you submit your Self Assessment online you will receive a calculation with the details.

Thank you

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