Low earner pension tax relief

[Andrew01]

Hi Group
Been doing some reading online but still confused with the maximum I can pay in to a personal pension and get tax relief on?
1, I am currently a low earner and do not pay income tax, so would my gross pay be the my maximum net personal pension contribution I can make?

I understand that most people that have no income from employment etc.., can pay in a maximum of £2880 net per year into a pension. This £2880 net contribution would receive tax relief at 20% making a gross contribution of £3600, even though the individual may have paid no income tax in the year at all.

It appears I can pay in a maximum of 100% of my "UK relevant earnings"/gross pay and gain tax relief on this pension contribution.

For example, I earn £5000 in a tax year from employment before tax/gross pay, as my earnings are less than my personal tax allowance I pay no income tax. Therefore the maximum I can pay in to a personal pension and gain tax relief on would be a net pension contribution of £5000 (100% of my "UK relevant earnings") made up to a gross £6250 within the pension with 20% tax relief?

More thoughts

When I am over 55 I can then cash in this pension take my 25% tax free lump sum (25% of £6250=£1562.50 assuming no fund growth). The rest of the fund £4687.50 would be liable to income tax if taken as a lump sum, when added to my employment earnings of £5000 my income is still below my personal tax allowance so I would pay no income tax.

The current HMRC tax free pension lump sum recycling rules would currently not be a problem as my tax free lump sum is small £1562.50 (£7500 before any questions are asked in a 12 month period). Net Pension contributions of £2880 or the maximum of my relevant earnings if applicable could be made each year until state pension age or 75 depending on the tax free personal allowance and income received from pensions at the time.

Thanks for reading
Andy.

[jason13]

For example, I earn £5000 in a tax year from employment before tax/gross pay, as my earnings are less than my personal tax allowance I pay no income tax. Therefore the maximum I can pay in to a personal pension and gain tax relief on would be a net pension contribution of £5000 (100% of my "UK relevant earnings") made up to a gross £6250 within the pension with 20% tax relief

You also have to consider the 20% tax relief you'll receive in the figure. Therefore, you cannot pay in £5000. You can only pay in £4000 and receive £1000 tax relief.

[jason13]

This just came up on another forum, btw: http://forums.moneysavingexpert.com/sho ... ?t=5162425

[Andrew01]

Thanks Jason
For confirming that the maximum gross pension contribution can only be = to your gross earnings.