Do tax changes hit sipp deposits made earlier in year

[AsDaysGoBy]

I saw a suggestion recently that Labour may bring in changes to a) reduce how much money you can put into pension and get tax relief b) reduce the tax relief to a fixed % rather than your marginal rate.

Is there any point in putting money into my Sipp before the election, if this change would affect me?

When they calculate tax liability, is it simply based on the law as it stands on 5th April regardless of when I put money in the Sipp? Or would they use the old rules for that sipp deposit, since it was reasonable to assume existing tax rules when I made it?

It's entirely up to the legislation drafters (directed by government). And when then there are often unintended consequences as our tax law is so ridiculously over complicated. So no one can tell you the answer. In practice, in my opinion, it is more likely they would give notice before a change because of the headache of sorting out the scenarios you describe.

I would think it unlikely they would change things retrospectively and that more likely they'd apply from April 2025 but never rule anything out!!

Thank you both!

When you make a payment into a SIPP, the provider claims the tax relief straight away which then gets credited to the SIPP a few weeks later. I think it's very unlikely therefore that any change will affect payments already made. Any change they make will at the very least need to allow time for systems to be updated to accommodate the change. And backdating the change will cause a big issue and cost for SIPP providers so again this is v unlikely.

20% tax relief is claimed back by the SIPP provider. Then you claim back any higher rate or additional rate relief on your tax return.

My worry is that Labour will reduce the tax relief to 20%. So they could just not allow you to include any more tax relief in your tax return next April. It seems unfair though, since you may have chosen to put money into your SIPP earlier in the year based on the rules at the time.

The rules would definitely not change in the middle of a tax year. If Labour did change how much you could contribute or how much relief you would get it would be from the start of a new tax year.

Note that none of this is in their manifesto, and there is quite a bit of scare mongering coming from the Tories

Sorry yes you are right. Completely forgot about that for a second! 🤦‍♀️

I hope you're right. Thinking about it, if it had gone into a workplace pension then the tax relief would have been at source - and they surely wouldn't have different tax treatment of a workplace pension and sipp.

So I guess they could introduce it from that moment on - but you're right that it would be cleaner to do it from the new tax year.

Thanks @Flandango - I know there's been nothing in the manifesto. But they also haven't said that it won't happen, and once you think about it (it was mentioned on another thread) it seems a fairly obvious target. I've had some personal circumstances this year which mean that change would hit me quite hard: and conversely, some uncertainty I'm facing means that making a payment now could also turn out badly for me. It's a difficult decision to make!

I think there’s a real possibility that the annual allowance will come down. Particularly given they’ve made comment that they won’t change the lifetime allowance. But it wouldn’t happen mid tax year. I would imagine you would also be able to use her previous years’ carry forward in the usual way.

It would be really difficult to change the rates of tax relief immediately and given Rachel Reeves’s comments about what a mess the tories made of implementing the removal of the lifetime allowance I think they might consider any sort of seismic change to need some introduction time