EIS relief & SIPPs

Crowdfunding Freetrade 🙏
1

Does anyone know if you can get still get SIPP tax relief in the same year as you get EIS relief? Even if you have claimed back most/all of tax paid?

Hypothetical example: suppose you earned £50k in tax year ending April 2020. You paid 7.5k tax on that. You also invested 25k in crowdfunding companies that year (including freetrade of course), and so you claimed back the 30% EIS relief for a 7.5k refund from the tax man, reducing your (income) tax burden to zero. Can you then put say 10k into a SIPP that same tax year and get that 10k topped up to 12k through the 20% SIPP contribution relief?

2

Pretty sure it’s based a maximum of 100% of your annual earnings before tax up to 40k. If you put in 10k of your own money that would get topped up to £12.5k. ( in England )

3

Sounds good but… in my example that would mean you’ve obtained tax relief of £7.5k + £2k = £9.5k for the year, but only paid £7.5k in tax. Free money?

4

Earn 12k ( below the tax threshold ) and you can put 9.6k in to your SIPP and still claim an extra 2.4k in relief. How long the current ( generous ) SIPP rules can be afforded who knows.

5

Have to say I don’t know a lot about SIPPs but they sound juicy.

Is there a website I can read more about them?

If I already have a plan with my employer, can I open a second one? Will I still get the juicy tax relief?

6

Try the HL website for good info. Without knowing what you contribute into your company person I can’t definitively say but the answers are probably yes and yes.

7

I always take issue with the media reporting on how much money the government ‘loses’ from SIPP tax relief. It’s not so much tax relief as tax deferral, you are still taxed on the money when you draw it out. If it didn’t exist it would be double taxation. Taxed once on the way in and again on the way out. If it were removed, no additional tax would be collected and instead tax receipts would go down since anyone with half a brain would stop paying into their pension.

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8

For tax relief at 40% levels the likelihood is the tax deferral is for a lower tax rate in retirement ( in addition to the 25% tax free lump sum available )

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9

From a pure tax point of view, SIPPs make a lot of sense via salary sacrifice as both you and your employer save on National Insurance, even more so for higher rate tax payers. From a long term planning point of view, salary sacrifice forces people to put money away and save without being able to access it, a bit like real estate and mortgages with accumulating house equity.

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