When will clients receive their tax relief?
One of the main advantages of SIPPs is that HMRC pay tax relief on personal pension contributions. The current rules are that when a contribution is paid HMRC will pay tax relief of 25% of the net contribution, or 20% of the whole gross figure.
This is however subject to two main factors:
1. The individual is a UK relevant individual. HMRC defines a UK relevant individual as someone who:
- Is a resident in the United Kingdom at some time during that tax year,
- was resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme, or
- has for that tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003), or
- is the spouse or civil partner of an individual who has for the tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003).
2. The individual has UK relevant earnings.* HMRC defines UK relevant earnings as:
- Employment income, including wages, bonuses and overtime;
- Income from trade or profession or vocation, for example sole trader income;
- Income from UK/EEA furnished letting businesses;
- Patent income.
*If a client does not have any UK relevant earnings but is a UK relevant individual they can still pay in a gross contribution per pension input period totalling £3,600.
For example:
Mrs Jones wishes to make a personal contribution on 20th January 2018 of £10,000 into her SIPP and has earnings of £12,500 in 2017/2018 tax year. HMRC will pay £2,500 tax relief on this contribution as it the total gross figure does not exceed her earnings for the year.
£10,000 (net) x 25% = £2,500
£12,500 (gross) x 20% – £2,500
When paying the contribution into her SIPP the pension provider will report the contribution to HMRC and request the tax relief. This will then be applied to the SIPP at a later date.
The dates in which reports have to be sent to HMRC and when the tax relief is paid are noted below;
| Date Contribution made to SIPP | Date report sent to HMRC | Date relief back by HMRC |
|---|---|---|
| 6th April to 5th May | By last working day of May | 21st June |
| 6th May to 5th June | By last working day of June | 21st July |
| 6th June to 5th July | By last working day of July | 21st August |
| 6th July to 5th August | By last working day of August | 21st September |
| 6th August to 5th September | By last working day of September | 21st October |
| 6th September to 5th October | By last working day of October | 21st November |
| 6th October to 5th November | By last working day of November | 21st December |
| 6th November to 5th December | By last working day of December | 21st January |
| 6th December to 5th January | By last working day of January | 21st February |
| 6th January to 5th February | By last working day of February | 21st March |
| 6th February to 5th March | By last working day of March | 21st April |
| 6th March to 5th April | By last working day of April | 21st May |
In the example of Mrs Jones, as she paid the contribution into her SIPP on the 20th January 2018 her SIPP provider will make a report to HMRC by the last working day of February with the tax relief being received on 21st March.
Should the 21st March fall on a non-working day then it will be received on the next working day thereafter.
At Hartley Pensions Ltd any tax relief is distributed to the clients SIPP account for investing within 24 hours of receipt.
