Calculate Contributions

[JonnyT]

Situation as follows:
1) I'm a higher rate tax payer
2) I have a company pension that is a defined contribution scheme using salary sacrifice
3) I have a SIPP that I contribute to every year
4) I make sure that the SIPP contributions are comfortably below the threshold for obtaining 40% tax relief


However this is sub-optimal.

How would I calculate the maximum I can put into the SIPP to get the full benefit of the 40% tax relief?
How would this work if I went back 3 years to use my full allowances?

[Urbandreamer]

Situation as follows:
1) I'm a higher rate tax payer
2) I have a company pension that is a defined contribution scheme using salary sacrifice
3) I have a SIPP that I contribute to every year
4) I make sure that the SIPP contributions are comfortably below the threshold for obtaining 40% tax relief


However this is sub-optimal.

How would I calculate the maximum I can put into the SIPP to get the full benefit of the 40% tax relief?
How would this work if I went back 3 years to use my full allowances?

I'm not sure that I understand you correctly.
In my case, I'm a 20% taxpayer and got the calculations wrong. I owe HMPC £158, which will need rectifying.

The calculations are VERY dependent upon your salary, and what you mean.

It's a new tax year, so you could be planning on changing your company contributions. That is without doubt the most tax efficient way to contribute because of the salary sacrifice aspect. You save the 40% tax and benefit from the employee NI. This may be only 2% for you as a higher rate taxpayer, but it's more than 0. For me, it's a 12% boost. Your employer may also chip in the NI that they save rather than keep it for themselves, gaining you an additional 13.8%.

How to calculate, given that you want to use your SIPP so that your entire allowance is used up? Well that of course depends upon your allowance, which may not be or have been £40k depending upon your salary at the time.

In simple terms, for each year starting with last year, calculate the difference between that year's allowance and the gross amount that was contributed. Note that the gross SIPP contributions are the net amount divided by 0.8, as only the first 20% of tax went into the pension, though this should be clear from the statement. The employer's contribution was gross. Add them up and is the gross amount that you may be able to pay in addition to this year's allowance.

Now do the same calculation for this year. If you don't or can't use previous year's allowances, then simply multiply by 0.8 to figure out what you can put into your SIPP. Can you use previous years? Well, add the gross unused allowances to this year's gross contribution and check that the result is less than your salary, after the salary sacrifice. If it is, then you can make those contributions as well. If not, then you can't do the amount in full.

Finally, reclaim the 20% tax on the contribution.

I believe that I have it right, but as a 20% taxpayer, I've always hit the limit that you can't contribute more than you have earned in the current year.