A higher-rate taxpayer put £15,000 in a SIPP instead of an ISA. The pension contribution restored her full personal allowance and triggered a 25% tax relief uplift from HMRC, effectively giving her a 20% cash benefit on the money she invested.
Instead of me to put £15,000 into my ISA as my financial advisor and the random guy on YouTube said I should do, put in an ISA. On the other hand, what she did was to put it in her SIPP. So a SIPP is a Self-Invested Personal Pension. So in that case, she now uses her pension as her primary investing account. So for a higher rate taxpayer, that does two things for her. She takes the £15K, puts it into her SIPP, that brings down her adjusted net income down down to £100K, automatically she gets back all her personal allowance, £12,570, that's back. So she's no longer paying 60% on a portion of her income. That's number one. Now when she puts in the same £15,000 into her pension, HMRC does something we call grossing up, GROSS. So basically they will refund her the tax that she's paid on that money because she's putting in the money from money that's already been taxed. So basically, at the end of the day, she automatically will get 25% net. That's 20% of the money.
