How the Sipps tax rebates work.
When a person's Sipp fund is used to buy a property or other item, the taxman will give the fund a credit equivalent to the basic rate of tax - which is currently 22 per cent.
When the person owning the Sipp then fills out their tax form at the end of the year, assuming that they are a higher rate taxpayer, they will then be able to claim a cash rebate equivalent to the difference between the 22 per cent credit already received into their fund and the top rate of tax - which is currently 40 per cent.
This 18 per cent rebate will apply to the whole of the initial investment, plus the extra 22 per cent credit received by the fund.
The result is that the net tax break will, in effect, be higher than theofficial 40 per cent.
For example, because of the complex way in which tax is calculated, a person whose fund buys a property worth £100,000 will receive a credit of about £28,000 into the fund, plus a subsequent cash rebate of around £23,000, making the total tax benefit worth about £51,000.
Got that then? Don't worry if not. Your financial adviser - and later on your accountant - should be able to spell it out in perhaps a clearer way.
The Tax Details (Yawn)
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