Pension allowance and SIPP tax and redundancy extras…
Discussion
Sorry to ask another pension question but struggling with this one as we get to years end and my imminent redundancy
I’m about to be made redundant after 20 odd years. As my redundancy payment comes to me before the new tax year starts I will have ‘earnt’ enough to be in the higher tax bracket.
I want to open a SIPP before 5 April to use my 2024/5 60k pensions allowance and at least try to reduce the tax burden on the redundancy payment beyond the tax free redundancy payment. Previous years pension allowances have enough room to cover the company personal and employer pension contributions from this year …so I have this years 60k pensions allowance ‘spare’.
Never had a SIPP before but I assume I can’t just dump 60k into a SIPP and then get 20% relief plus additional payment to me (up to 40%) via tax return…. even if my earnings this year with the redundancy lump sum are more than this ultimate total (60+24k) as that’s more than my available 60k pensions allowance….I assume instead I must open a SIPP and add only 60k LESS 40% (so 36k) …. as this will then match the allowance when reconciled with HMRC through my return (ie equates to the 60k pensions relief available)
Anyone able to confirm this or set me right? My employers accountancy firm who are normally helpful appear to have gone AWOL and I’m off company books at the end of the month and they will thus ignore me for ever more. Thanks
I’m about to be made redundant after 20 odd years. As my redundancy payment comes to me before the new tax year starts I will have ‘earnt’ enough to be in the higher tax bracket.
I want to open a SIPP before 5 April to use my 2024/5 60k pensions allowance and at least try to reduce the tax burden on the redundancy payment beyond the tax free redundancy payment. Previous years pension allowances have enough room to cover the company personal and employer pension contributions from this year …so I have this years 60k pensions allowance ‘spare’.
Never had a SIPP before but I assume I can’t just dump 60k into a SIPP and then get 20% relief plus additional payment to me (up to 40%) via tax return…. even if my earnings this year with the redundancy lump sum are more than this ultimate total (60+24k) as that’s more than my available 60k pensions allowance….I assume instead I must open a SIPP and add only 60k LESS 40% (so 36k) …. as this will then match the allowance when reconciled with HMRC through my return (ie equates to the 60k pensions relief available)
Anyone able to confirm this or set me right? My employers accountancy firm who are normally helpful appear to have gone AWOL and I’m off company books at the end of the month and they will thus ignore me for ever more. Thanks
Edited by weeve on Sunday 9th February 20:32
The first £30k of your severance package should be tax free.
If it’s not too late, you should ask your employer if they will let you exchange/sacrifice some or all of the taxable portion of your severance pay in exchange for a ‘larger’ company pension contribution - *if that’s what you want to do*.
If you are lucky, they will pass on some or all of their ERs NIC liability, and you will pay less EEs NIC.
Presumably you already have a workplace scheme so that would be the obvious place to put this ‘final’ pension contribution into, but if you want to open a SIPP at this point, then that could work but anything that complicates matters for your employers payroll people may fall on deaf ears…
If it’s not too late, you should ask your employer if they will let you exchange/sacrifice some or all of the taxable portion of your severance pay in exchange for a ‘larger’ company pension contribution - *if that’s what you want to do*.
If you are lucky, they will pass on some or all of their ERs NIC liability, and you will pay less EEs NIC.
Presumably you already have a workplace scheme so that would be the obvious place to put this ‘final’ pension contribution into, but if you want to open a SIPP at this point, then that could work but anything that complicates matters for your employers payroll people may fall on deaf ears…
I was you 2 years ago!
I opened a SIPP and put £48k of my cash into it, couple of weeks later the SIPP provider put in 25% extra (20% basic rate) +£12k to make it £60k in thecSIPP. I then submitted my Self Assessment to HMRC and let them know I had put £48k into a SIPP, they gave me 25% back (the extra 20% for a higher rate taxpayer), £12k cash in my pocket!
Summary, £60k SIPP cost me £36k.
Regards
Jim
I opened a SIPP and put £48k of my cash into it, couple of weeks later the SIPP provider put in 25% extra (20% basic rate) +£12k to make it £60k in thecSIPP. I then submitted my Self Assessment to HMRC and let them know I had put £48k into a SIPP, they gave me 25% back (the extra 20% for a higher rate taxpayer), £12k cash in my pocket!
Summary, £60k SIPP cost me £36k.
Regards
Jim
Mogul said:
The first £30k of your severance package should be tax free.
If it’s not too late, you should ask your employer if they will let you exchange/sacrifice some or all of the taxable portion of your severance pay in exchange for a ‘larger’ company pension contribution - *if that’s what you want to do*.
If you are lucky, they will pass on some or all of their ERs NIC liability, and you will pay less EEs NIC.
Presumably you already have a workplace scheme so that would be the obvious place to put this ‘final’ pension contribution into, but if you want to open a SIPP at this point, then that could work but anything that complicates matters for your employers payroll people may fall on deaf ears…
Not permitted at our company scheme unfortunately If it’s not too late, you should ask your employer if they will let you exchange/sacrifice some or all of the taxable portion of your severance pay in exchange for a ‘larger’ company pension contribution - *if that’s what you want to do*.
If you are lucky, they will pass on some or all of their ERs NIC liability, and you will pay less EEs NIC.
Presumably you already have a workplace scheme so that would be the obvious place to put this ‘final’ pension contribution into, but if you want to open a SIPP at this point, then that could work but anything that complicates matters for your employers payroll people may fall on deaf ears…
Happy Jim said:
I was you 2 years ago!
I opened a SIPP and put £48k of my cash into it, couple of weeks later the SIPP provider put in 25% extra (20% basic rate) +£12k to make it £60k in thecSIPP. I then submitted my Self Assessment to HMRC and let them know I had put £48k into a SIPP, they gave me 25% back (the extra 20% for a higher rate taxpayer), £12k cash in my pocket!
Summary, £60k SIPP cost me £36k.
Regards
Jim
Who knew I had someone living my best life 2 years ago I opened a SIPP and put £48k of my cash into it, couple of weeks later the SIPP provider put in 25% extra (20% basic rate) +£12k to make it £60k in thecSIPP. I then submitted my Self Assessment to HMRC and let them know I had put £48k into a SIPP, they gave me 25% back (the extra 20% for a higher rate taxpayer), £12k cash in my pocket!
Summary, £60k SIPP cost me £36k.
Regards
Jim
… so you added 48k and got 60k into the pension then the extra back as a cheque (or similar… ) to your account outside of the pension?Seems like I should pay in 48k like your good self then, not 36k. If I’m wrong and HMRC ask why Ill say a nice person on the internet told me to.
Happy Jim said:
I was you 2 years ago!
I opened a SIPP and put £48k of my cash into it, couple of weeks later the SIPP provider put in 25% extra (20% basic rate) +£12k to make it £60k in thecSIPP. I then submitted my Self Assessment to HMRC and let them know I had put £48k into a SIPP, they gave me 25% back (the extra 20% for a higher rate taxpayer), £12k cash in my pocket!
Summary, £60k SIPP cost me £36k.
Regards
Jim
You must have done this right or the tax wouldn’t work out, but for clarity you gross up your SIPP payment when you tell HMRC - so would have told them you put £60K into your SIPP.I opened a SIPP and put £48k of my cash into it, couple of weeks later the SIPP provider put in 25% extra (20% basic rate) +£12k to make it £60k in thecSIPP. I then submitted my Self Assessment to HMRC and let them know I had put £48k into a SIPP, they gave me 25% back (the extra 20% for a higher rate taxpayer), £12k cash in my pocket!
Summary, £60k SIPP cost me £36k.
Regards
Jim
Apologies if you had already covered this, but you only get the 40% tax relief on contributions to the extent that you would have remained a higher rate taxpayer (if that makes sense).
So, for example, if your taxable income (including that arising from redundancy) came to £60k then you could only get 40% tax relief on the first £9,730 of grossed-up pension contributions (ie, so your taxable income was then £50,270). Any contributions in excess of that would only get 20% tax relief.
So, for example, if your taxable income (including that arising from redundancy) came to £60k then you could only get 40% tax relief on the first £9,730 of grossed-up pension contributions (ie, so your taxable income was then £50,270). Any contributions in excess of that would only get 20% tax relief.
This calculator should help you see the exact amounts.
i) Your "after tax" contribution, what it'll appear as inside your pension after the pension company adds the 20% base rate part (happens immediately)
ii) what you'll be able to claim back thru your tax return
https://www.hl.co.uk/pensions/tax-relief/calculato...
Notice that cash flow will take a hit for a while because the 2nd step requires you do the annual tax return and wait for HMRC to decide to pay you back.
i) Your "after tax" contribution, what it'll appear as inside your pension after the pension company adds the 20% base rate part (happens immediately)
ii) what you'll be able to claim back thru your tax return
https://www.hl.co.uk/pensions/tax-relief/calculato...
Notice that cash flow will take a hit for a while because the 2nd step requires you do the annual tax return and wait for HMRC to decide to pay you back.
Edited by FullyReclined on Monday 10th February 12:59
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