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Where Taxpayers and Advisers Meet

SIPP pension tax relief

farmergiles
Posts:1
Joined:Wed Mar 30, 2022 3:44 pm
SIPP pension tax relief

Postby farmergiles » Wed Mar 30, 2022 4:02 pm

Hi,

I hope someone can shed light on this.

Say I am a basic rate taxpayer with earnings of £20,000. I then reduce my income tax to the point where I do not have any liability, through investing in EIS, VCTs etc. Say in the same year I have a large capital gain of £30,000. So I have capital gains tax to pay. In the same year if I make use of gift aid, the credit claimed by the charity can go against income tax or cgt.

The question I have is, if I make a pension contribution of say £5,000 (so over £2880) to my SIPP pension, will this full amount be due the standard tax credit of £1250 (25%)? Ultimately tax has been paid, just not income tax. I have been searching high and low but can find a clear answer. Really appreciate your help here. Thanks!

D&C
Posts:154
Joined:Mon Nov 25, 2019 11:35 pm

Re: SIPP pension tax relief

Postby D&C » Thu Mar 31, 2022 9:38 pm

There is absolutely no connectio nvetween the tax you pay and the pension tax relief added to a "relief at source" pension contribution.

Providing it's a qualifying contribution within the relevant tax relief and annual allowance limits, which a £6,250 contribution with (pensionable) earnings of £20,000 usually would be, then there isn't an issue.

There are plenty of non taxpayers making relief at source contributions and getting baic rate tax relief.

If your only taxable income was pensionable earnings of £10,000 on which no tax was payable you could contribute £10,000 gross. £8,000 that you would pay plus £2,000 in basic rate relief HMRC would add.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: SIPP pension tax relief

Postby robbob » Fri Apr 01, 2022 9:09 am

D&C
If your only taxable income was pensionable earnings of £10,000 on which no tax was payable you could contribute £10,000 gross. £8,000 that you would pay plus £2,000 in basic rate relief HMRC would add.
That is plain wrong unfortunately D&C - you can contribute maximum of £3600 grossed up or 100% of earned income - pension income is not earned income so cannot be counted as such - the relevant hmrc manual even goes to the trouble of explicitly warning this is the case.
For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings.
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

Furthermore there may be additional restrictions for those wanting to add to pension who have already drawn down on a pension !

D&C
Posts:154
Joined:Mon Nov 25, 2019 11:35 pm

Re: SIPP pension tax relief

Postby D&C » Mon Apr 04, 2022 9:04 pm

The MPAA is a fair point but the op referred to "earnings".

There is no mention of pension income so no reason to think contributions would be restricted to £3,600 (gross).

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: SIPP pension tax relief

Postby robbob » Tue Apr 05, 2022 7:14 pm

The MPAA is a fair point but the op referred to "earnings".
My point was nothing to do with MPAA it was simply to do with fact the your exact quote below which suggests if the op had pension income that could count as earnings for adding to pension that is simply plain wrong pension income is always ignored when working out what your "earened income is" that maximises pension contributions - that rule being a different rule to the mpaa restriction which may also be in place.
apologies in if i have missintepretted what you post was meant to be saying (quite possible if not even probable) - to me though it did look like it could give a misleading impression that someone could add 10k into pension when their only income was pension income of 10k.

If your only taxable income was pensionable earnings of £10,000 on which no tax was payable you could contribute £10,000 gross


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