How does tax relief work if I have more than one SIPP?
When you pay money into a pension scheme, your contributions usually benefit from tax relief. This applies whether you’re paying into a workplace pension, a standard personal pension or a SIPP.
With SIPPs, you’ll typically receive basic-rate (20%) income tax relief at source. This means that the tax you would have paid on each contribution is added to your pension pot. If you are a higher-rate (40% or 45%) taxpayer, you can claim the extra via your tax return or by applying directly for a tax refund.
Importantly, though, you only qualify for tax relief pension contributions up to a certain annual cap. For the 2021-22 tax year (and remaining at this level for the 2022-23 tax year), the total allowance is a maximum of £60,000 each year for most people. This is the total amount you can contribute across all of the pension schemes you pay into. However, you can also only receive tax relief on up to 100% of your annual earnings. So, if you earn less than £60,000, your annual allowance will be lower.
This allowance can be split up however you like. So, assuming you qualify for the full £40,000 allowance, you could pay £25,000 into one SIPP, and £15,000 into a second SIPP, for example, and benefit from tax relief on your full contributions into both schemes. This assumes you don’t have any separate personal or workplace pensions that you’re actively paying into.
But if you pay in more than the £60,000 total allowance, any extra won’t qualify for tax relief. If you are paying into multiple accounts, individual providers won’t necessarily know when you tip over your allowance in order to stop applying tax relief. You’ll therefore need to monitor this carefully yourself. If you do exceed your allowance, either you or your pension provider(s) must pay an annual allowance tax charge. You can find out more about this on the gov.uk website.
