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  • FIRST POST
    • Milb
    • By Milb 16th Oct 16, 4:18 AM
    • 6Posts
    • 0Thanks
    Milb
    SIPP Questions
    • #1
    • 16th Oct 16, 4:18 AM
    SIPP Questions 16th Oct 16 at 4:18 AM
    Hi everyone,

    I recently started a SIPP and have a few questions regarding its affect on my taxes.

    I am currently working and living abroad but I still have income in the UK seperately from my foreign employer, where I am sensibly getting paid here up to the tax allowance of £11,000. From my research, it seems my max contributions that include tax relief are £3,600 (inclusive of the tax relief). Is this correct?

    Then the more important question is, would these £2880 contributions reduce taxable income by that equivalent pre tax amount, meaning I could get paid £14,600 without any income tax obligations in the U.K.?

    Thanks
Page 1
    • robin61
    • By robin61 16th Oct 16, 8:37 AM
    • 489 Posts
    • 371 Thanks
    robin61
    • #2
    • 16th Oct 16, 8:37 AM
    • #2
    • 16th Oct 16, 8:37 AM
    This is how it normally works.
    If you earn £11k i.e. that would be what you would expect to see on your P60 that is the maximum amount gross you can put into your SIPP.
    So if you put in £8800 your pension company will top that up by £2200. It makes no difference that you have not been taxed on the original £11000. If you want to put in less than £11k same rules apply.
    People who earn nothing can put £2800 in and have that topped up to £3600 in the same way.

    So I guess the question is does your £11k definitely count as UK earnings ? I am not sure how or if you living abroad complicates this. Perhaps others will be able to confirm.
    Last edited by robin61; 16-10-2016 at 8:59 AM.
    • JasonPr
    • By JasonPr 16th Oct 16, 9:46 AM
    • 113 Posts
    • 64 Thanks
    JasonPr
    • #3
    • 16th Oct 16, 9:46 AM
    • #3
    • 16th Oct 16, 9:46 AM
    So I guess the question is does your £11k definitely count as UK earnings ?
    Originally posted by robin61
    I agree that this is the main question to ask before anything else can be answered.

    Is the work done for that "UK employment" done in the UK or elsewhere?
    • Milb
    • By Milb 16th Oct 16, 4:56 PM
    • 6 Posts
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    Milb
    • #4
    • 16th Oct 16, 4:56 PM
    • #4
    • 16th Oct 16, 4:56 PM
    Yes this income is solely tied to activity in the U.K.

    So the SIPP contribution would reduce taxable wages in my P60? Meaning I can generate more income without it being in the 20% tax bracket.
    • robin61
    • By robin61 16th Oct 16, 5:40 PM
    • 489 Posts
    • 371 Thanks
    robin61
    • #5
    • 16th Oct 16, 5:40 PM
    • #5
    • 16th Oct 16, 5:40 PM
    Yes this income is solely tied to activity in the U.K.

    So the SIPP contribution would reduce taxable wages in my P60? Meaning I can generate more income without it being in the 20% tax bracket.
    Originally posted by Milb
    No it wouldnt reduce the gross pay on your P60. That would still be £11k.
    Have a look at my previous post again that tells you how the tax relief works. Basically it means you put £8800 into your SIPP. It gets made up to £11,000. You can put This in providing you have £11k in UK earnings.

    Do you actually get a P60 from your employer or a tax code from HMRC ?
    • Milb
    • By Milb 16th Oct 16, 7:54 PM
    • 6 Posts
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    Milb
    • #6
    • 16th Oct 16, 7:54 PM
    • #6
    • 16th Oct 16, 7:54 PM
    Yes I get a P60, pay NI and even pay some income tax due to an error in tax code from previous P11D or something. It is also nothing to do with my employment abroad, essentially it is pay for some consulting/retainer from a previous employer in the U.K. I negotiated up to that amount, it isn't a dodgy as it might initially sound, at least I hope!

    It finally clicked than any additional income would mean that I essentially pay for the tax relief I am receiving, which is perhaps the more moral thing to do.

    I do not think it's exactly right that I could put in the full £8,800 and get full tax relief up to my earnings, and have the remaining amount minus NI. However, I will still up my contributions from the £2,880. They have got me before and will no doubt get me again tax wise.

    Thanks everyone for your help.
    Last edited by Milb; 16-10-2016 at 8:25 PM.
    • robin61
    • By robin61 16th Oct 16, 8:52 PM
    • 489 Posts
    • 371 Thanks
    robin61
    • #7
    • 16th Oct 16, 8:52 PM
    • #7
    • 16th Oct 16, 8:52 PM
    Yes I get a P60, pay NI and even pay some income tax due to an error in tax code from previous P11D or something. It is also nothing to do with my employment abroad, essentially it is pay for some consulting/retainer from a previous employer in the U.K. I negotiated up to that amount, it isn't a dodgy as it might initially sound, at least I hope!

    It finally clicked than any additional income would mean that I essentially pay for the tax relief I am receiving, which is perhaps the more moral thing to do.

    I do not think it's exactly right that I could put in the full £8,800 and get full tax relief up to my earnings, and have the remaining amount minus NI. However, I will still up my contributions from the £2,880. They have got me before and will no doubt get me again tax wise.

    Thanks everyone for your help.
    Originally posted by Milb
    If you are paying into a SIPP the 20% tax relief is added to your contributions by the pension company and then they claim it from HMRC.

    You can save whatever you earn as a gross salary in a tax year into your SIPP up to a maximum of £40k per annum but you can't put in more than you earn in that tax year. So if you earn a gross salary of £11k you can put £11k gross into your SIPP to get a gross figure of £11k you only need to put in £8800 net.

    Here is an online calculator.

    http://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator

    So you can earn £11k pay no income tax on it as your personal allowance is £11k you can keep £2200 and put the remaining £8800 into your SIPP and the pension company will top it up to £11000.
    The small amount you pay in NI does not matter as it is your gross salary that determines how much you can invest.
    Last edited by robin61; 16-10-2016 at 9:44 PM.
    • Milb
    • By Milb 16th Oct 16, 11:09 PM
    • 6 Posts
    • 0 Thanks
    Milb
    • #8
    • 16th Oct 16, 11:09 PM
    • #8
    • 16th Oct 16, 11:09 PM
    You explained this well before, but it is a good clarification. I meant right from a moral standpoint not on the factuality of the information.

    Thanks again for your help.
  • jamesd
    • #9
    • 16th Oct 16, 11:30 PM
    • #9
    • 16th Oct 16, 11:30 PM
    I recently started a SIPP and have a few questions regarding its affect on my taxes.
    Originally posted by Milb
    When you started the SIPP did you tell the SIPP firm that you are not a UK resident person? If you did not and are not UK resident for income tax purposes you should do so as soon as possible. Normally a UK firm would refuse to allow you to open a new SIPP and would refuse to allow you to make contributions, in part on the basis that you would be assumed not to be entitled to any UK tax relief on your pension contributions.

    Detailed rules on whether you're a relevant UK individual eligible to receive UK pension tax relief are given in PTM044100:

    "An individual is a relevant UK individual for a tax year if they:
    • have relevant UK earnings chargeable to income tax for that tax year,
    • are resident in the United Kingdom at some time during that tax year,
    • were resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme, or
    • have for that tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003), or
    • are the spouse or civil partner of an individual who has for the tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003)."
    It appears that you are no longer UK resident for income tax so whether you were in the previous five tax years could be what determines whether you are a relevant UK individual entitled to relief or not.

    Alternatively, you might "have relevant UK earnings chargeable to income tax" depending on what the double taxation treaty for your country of residence says. If it says that your income is to be taxed there rather than in the UK then you don't have earnings chargeable to income tax in the UK.

    In addition it's unclear whether you have any UK income tax liability at all. The normal tax treaty provisions specify that income tax is due in the country of tax residence, not the country where the income is paid, though there are many details and exceptions. HMRC has a Digest of current double taxation treaties that can provide some initial guidance.

    If you're a citizen of a European Economic Area country or are UK resident you have a UK personal allowance for income tax. If neither applies you probably don't unless you're working for the British government. You'll need to claim your personal allowance every year using form R43 if you're entitled to it while being non-resident in the UK.
    Last edited by jamesd; 16-10-2016 at 11:44 PM.
    • Milb
    • By Milb 17th Oct 16, 12:39 AM
    • 6 Posts
    • 0 Thanks
    Milb
    This was the simplest question to see how much I can contribute to my SIPP and if there were any further efficiencies to be had from this contribution. I think it is beyond this question to start posting all of this regarding taxes and residence, but I appreciate the holistic approach to the question.

    This may help clarify some of the situation to you.

    I recently (more recently then the SIPP) moved abroad and I would come under dual residence, I fully expect to and would currently legally have to be back in the UK within the next few years. I am yet to be here for tax time in both countries, but the accountant will sort out the finer technicalities of any DTA and what needs to be declared where. I can also assure you that I am in a very high tax country so you do not have to feel like I am somehow personally benefitting from this in any substantial way.

    It was a much more complicated question to query how much gross income applies to the UK after any double taxation is applied to that income, to then have to figure out how much can be contributed to my SIPP, when I know that at the very least, my gross uk income will be at least £11,000 and am 100% sure this does not get declared in the country that I am currently living in.
    Last edited by Milb; 17-10-2016 at 1:02 AM.
  • jamesd
    On the much simpler question, yes, the £3,600 would reduce your income tax liability by that much so you could increase your UK income as desired.

    Your place(s) of residence might completely ignore that and charge you income tax on it anyway. Depends on the specifics of the treaties that apply and their own local laws. But at least the UK part would be relatively simple.

    No need to worry about me criticising being in a low tax location, I'd encourage it because this place is abut saving money and that's a useful way sometimes. I went holistic because lots of people don't appreciate that the eligibility issues can be a bit fiddly and it's nice not to let people accidentally claim tax relief they aren't entitled to, beats sorting out a mess later.
    • Milb
    • By Milb 17th Oct 16, 2:05 AM
    • 6 Posts
    • 0 Thanks
    Milb
    Okay thanks James, I will definitely get this whole arrangement double checked by the accountant who signed off on it originally and then I'll maybe clarify with another. I'm pleased I can up my SIPP contribution and thanks again everyone for that information.

    I would personally prefer to pay income tax in the U.K. first then take tax treaties against the local income but apparently that does not work here. Unfortunately where I live tax is higher until you can play the deductions games with assets and children etc.

    I'm also hoping that in future when this UK income will have to be declared where I am currently living, that the SIPP contributions will reduce the tax burden of that income - I will get this checked out.
    Last edited by Milb; 17-10-2016 at 2:16 AM.
  • jamesd
    I doubt that there will be any change in whether the UK income has to be reported where you are, unless it's linked to time of residence. There are planned changes to automatically report income between countries with the first big batch starting in early 2017. But that's just to catch people who don't already make proper reports.
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