funding pension contributions out of savings

stradivariusmonkey

In 08/09 I earned under £150k, which included a redundancy payment.

For the first 8.5 months of the tax year, I was contributing to a pension, however I made no contributions in the last 3.5 months.

As of 1 May 2009. I am self-employed for tax purposes (I am a member of an LLP) and understand that my taxable income in 09/10 and in the years to come will be reduced by any part the relevant year’s income that I put into a pension (which I suppose will have to be a SIPP).

However, I am less clear what the situation is if I want to make payments into a pension out of savings, rather than income. My savings were generated out of a combination of 08/09 taxable income and non-taxable income (ie, the sum of the non-taxable part of my redundancy pay and a tax reclaim resulting from the combination of the application of PAYE and my being redundant for 3.5 months).

Can anyone advise whether I need to allocate any payments into a pension out of savings between previously-taxed income and previously-untaxed income, how I would go about doing so, and what the mechanism is for actually getting the tax “top-up” into the SIPP?

Also, I am unclear on what rate would relief be applied at; would it be at my marginal rate at the time that the income was earned (40%) or would it be my marginal rate in the tax year when the contribution is made? Hopefully the former, so I can stick the money into my SIPP soon to benefit from the current low (-ish, but rising) equity markets. If the latter, there is presumably an advantage to be gained by waiting until I am in the 40% tax bracket again (more so if I wait until the new 50% bracket is effective), as I don’t expect to be earning enough from the first year of trading of our LLP (and interest on savings – my only other source of taxable income) to be the 40% bracket for 09/10.

Any help would be much appreciated!