SIPP question

[hugebrain]

My, err, friend started filling his tax form today and noticed something.

His annual salary was £5000 and he paid £5000 into a SIPP. This magically transformed into £6,410.26.

Now he's filling in the form (14.1) and he notices that the 6,410.26 is above the salary limit for putting into the SIPP.

Should he put 6,410.26 on the form and ignore the problem, or put £5,000 on the form and write to the SIPP company and try to get them to sort it out?

Or would he be better off if he suddenly remembered that his salary was actually £7,000 for the year in question and his SIPP payment was therefore OK? If this happened how would he go about paying the National Insurance which would become due?

[bored]

My, err, friend started filling his tax form today and noticed something.

His annual salary was £5000 and he paid £5000 into a SIPP. This magically transformed into £6,410.26.

Now he's filling in the form (14.1) and he notices that the 6,410.26 is above the salary limit for putting into the SIPP.

Should he put 6,410.26 on the form and ignore the problem, or put £5,000 on the form and write to the SIPP company and try to get them to sort it out?

Or would he be better off if he suddenly remembered that his salary was actually £7,000 for the year in question and his SIPP payment was therefore OK? If this happened how would he go about paying the National Insurance which would become due?

How did £5000 become £6410.26? Is £6410.26 the actual contribution or the value of the portfolio?

[Gonzo]

How did £5000 become £6410.26? Is £6410.26 the actual contribution or the value of the portfolio?

By my calculations, £5000 should have become £6100 once the 22% that they will take from the taxman is added on.

Professional advice is needed not ours! From my limited understanding, it was not allowed to contribute more than 100% of salary to a pension before 5th April last year. Since then, the rules are different.

I may not be right on that though.

[moorfield]

You made a net of basic rate tax contribution, so your SIPP provider grossed it up ie. claimed back the tax from HMRC on your behalf

thus, £5000*(100/78) = £6410.26 - not £5000*(122/100) = £6100

HTH

[Gonzo]

You made a net of basic rate tax contribution, so your SIPP provider grossed it up ie. claimed back the tax from HMRC on your behalf

thus, £5000*(100/78) = £6410.26 - not £5000*(122/100) = £6100

HTH

D'oh!

I agree. Thanks for putting that straight.

I still think that the rules pre April 2007 did not allow you to put more than 100% of gross salary into a pension though. Otherwise, you would be getting a refund of tax which was greater than the amount of tax that had been paid.

The rules are different now though.

[dude69]

My, err, friend started filling his tax form today and noticed something.

His annual salary was £5000 and he paid £5000 into a SIPP. This magically transformed into £6,410.26.

Now he's filling in the form (14.1) and he notices that the 6,410.26 is above the salary limit for putting into the SIPP.

Should he put 6,410.26 on the form and ignore the problem, or put £5,000 on the form and write to the SIPP company and try to get them to sort it out?

Or would he be better off if he suddenly remembered that his salary was actually £7,000 for the year in question and his SIPP payment was therefore OK? If this happened how would he go about paying the National Insurance which would become due?

Your friend was foolish.

He should have had his company pay the £5k itself, saving it £5k in corporation tax.

He cannot usefully pay the £5k himself, because he has not paid any income tax, and therefore the SIPP is offering him no tax advantage.


Tell him to write the cheque from his company, and to cancel the personal payment. If he cannot cancel the personal payment, he needs to contact the SIPP provider to tell them not to gross up his payment.

[minstrel]

He cannot usefully pay the £5k himself, because he has not paid any income tax, and therefore the SIPP is offering him no tax advantage.

You don't have to have paid tax on the income to get the 22% relief.

SIPP still gives the tax advantage if you only draw £5000 salary per year and pay £5000 gross into the SIPP.

[Bradley]

Limitations

Your "friend" should put in £5,000. The gross relief is allowed on a pound for pound basis above £3,600 i.e. if you earn a salary of £3,600 or less you can make a gross contribution of £3,600 or £2,808 net. If you earn £5,000 you can make a gross contribution of £5,000 or £3,900 net. The net is the amount you, sorry your "friend" writes the cheque for.

Your company can make unlimited contributions on your behalf i.e. its not tied to salary at all.

[hugebrain]

Thanks for your help. My friend rang up the SIPP company and it seems that they can undo the transaction and give him back the £1,100 that he overpaid. So he can put £5,000 on the tax form and all will be well.

Is there anything that isn't crashing at the moment for him to put the dosh into?

[rootsnall]

Thanks for your help. My friend rang up the SIPP company and it seems that they can undo the transaction and give him back the £1,100 that he overpaid. So he can put £5,000 on the tax form and all will be well.

Is there anything that isn't crashing at the moment for him to put the dosh into?

Your friend could put the contribution into the SIPP and leave it as cash ready to be invested post crash. My SIPP pays an OK rate of interest and you can pounce via online trading if you think it's time to buy.