The Lemon Fool

Hi

I got a redundancy payment this year where £18k has already been taxed at 40%. I've opened a sipp that I want the £18k to go to but I'd like to double check on the mechanics please. I'm well within annual allowances for pension savings.

I believe I will need to write a cheque for £14,400 and pay that in to my sipp. That will then automatically be boosted to £18k (but I don't know if that's immediately , shortly or at the end of tax year, etc). I will then need to fill in a tax form to cover the other £3,600 tax that I've already paid on the redundancy payment. Have I got the right end of the stick?

Ta
Bob

If you want to end up with £18,000 in your SIPP, then yes, make a deposit of £14,400. £3,600 basic rate tax relief will be automatically added, usually after about 6 or 7 weeks, depending on the time of the month you make your deposit.

You then claim a further £3,600 higher rate tax relief from HMRC via self assessment or otherwise. This comes direct to you, meaning your £18k in the SIPP has cost you a net £10,800.

Your post, though, implies you actually might want to have a gross £30,000 in the pension, costing the net £18,000 you have in your hand. For this you'd have to deposit £24,000, get £6k basic relief added, and another £6k higher rate relief refunded to you.

Scott.

Thanks for your help.

The figure I'm working with is £18k gross. It's been taxed at an emergency tax code, so pretty much at 40%. It's a minor pain to mobilise the extra £3.6k from savings to make a £14.4k deposit this year, but at least I'll get it back shortly.

Cheers
Bob

On the Motley Fool board, sipptechie from AJBell gave a worked example of the timing of tax relief into the sipp:

http://boards.fool.co.uk/the-tax-reclaim-cycle-will-work-as-follows-12899724.aspx

"Contribution received by your SIPP administrator between 6 September and 5 October.
They will submit the reclaim to HMRC on or before 31 October.
Tax reclaim received by them and credited to your SIPP around 21 - 25 November"

Scott.