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Where Taxpayers and Advisers Meet

SIPP most efficient Funding

Posts: 1
Joined: Sun Aug 02, 2020 4:07 pm

SIPP most efficient Funding

Postby rogerF » Sun Aug 02, 2020 4:26 pm

I am thinking of opening a SIPP and I have a question about the most tax efficient way of funding it.
I would want to make regular, say monthly contributions.

Here is my situation:
1- I am the director of my UK Ltd company but do not draw any salary or dividends from it.
2- I am as well self employed with income that puts me squarely in the 40% tax bracket

My self-employment income affords me and my family a comfortable lifestyle and I could contribute to a SIPP, but it won’t be much, and I would like to do more but in the most tax efficient way.

I thought of 2 ways of going about this:

1- My Ltd company could contribute to my personal SIPP (as an employer). It would have enough money to do so. Let’s say for example, 10 K/year.
The Ltd. would not pay the corp. tax on those 10 K.

2- I thought what if the Ltd. company pays me the 10 K as a salary. It would not affect my tax bracket as I am already above the 40% threshold.
The Ltd would not pay tax as it’s a 10 K salary, probably a bit of NIC…
Now personally I would take the 10 K and contribute them to my SIPP. Would I be eligible for the extra tax relief since I am in the 40% bracket? In which case that is much more beneficial in terms of tax efficiency.

Just to clarify, my aim here would be to fund the SIPP and in the same time draw money from the company without me needing the proceeds to live off and get a 40% boost to my SIPP from day one…
would the second way be more tax beneficial to me or am I missing something?

Thank you in advance for your help.


Posts: 431
Joined: Mon Feb 13, 2017 10:09 am

Re: SIPP most efficient Funding

Postby someone » Sun Aug 02, 2020 9:06 pm

I think you have something backwards.

The 'normal' way to maximize tax efficiency of pension contributions for an employee is to do it via salary sacrifice. Some employers pay some or all of the NI they save into the employees pension too.

It doesn't matter what tax bracket you are in, the income tax that can be reclaimed matches the income tax that is paid. The disadvantage of using the relief at source method (making payments from taxed income) is that you have to ensure your tax code is correct otherwise there is either an under or overpayment of tax at the end of the tax year. This can easily amount to thousands of pounds, especially if contributions change from one year to another.

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