Pension contribution queries

gallygirl

A few random questions:

• I know that when not earning you can pay 3.6k into a pension (including tax relief). What consitues as 'earning'? I assume rental income would count (as they're quick enough to tax me on it )?
• If I earn say 25k from rental income could I in theory pay all of that into a pension?
• If I'm living overseas but still paying tax in the UK on rental income I assume that I could still contribute and get tax relief?

Thanks.

dunstonh

I assume rental income would count (as they're quick enough to tax me on it )?

No.

What consitues as 'earning'?

Earnings that is classed as earned income. Self employment or employment income.

If I earn say 25k from rental income could I in theory pay all of that into a pension?

no

If I'm living overseas but still paying tax in the UK on rental income I assume that I could still contribute and get tax relief?

You also need to be resident in the UK to contribute to UK pensions (bar some exceptions).

gallygirl

Aw .

OK, so if my rental income does not count that means as I'm not earning I can still contribute 3.6k?

What about if I earn a little bit (say £500 from online work) - what would happen then?

If I've earned say 30k from employment (before I give it up) in the tax year, can I pay a lump sum in, in addition to existing employee contributions and regular SIPPS payments, say up to 30k overall, staying below the Lifetime Allowance thresholds? Could I do that after I've left work but in the same tax year?

Finally, what does 'resident in the UK mean'? Sounds obvious but if I am classed as a UK resident (e.g. still retain UK base, bank accounts etc) does that count, or does it literally mean 'resident in the UK'?

Thanks dunston, helpful as always :T.

FatherAbraham

gallygirl wrote: »

Finally, what does 'resident in the UK mean'? Sounds obvious but if I am classed as a UK resident (e.g. still retain UK base, bank accounts etc) does that count, or does it literally mean 'resident in the UK'?

Read all about it: http://www.hmrc.gov.uk/international/residence.htm

Meaning of 'residence' and how it affects your tax

Your UK tax liability depends on where you are 'resident' and 'domiciled' in a tax year. This guide provides an introduction to the meaning of tax residence and links to further guidance. It also links to guidance on domicile.
It shows how the combination of residence and domicile affects tax on your UK and foreign income and gains.
Up to 5 April 2013, your tax position could be affected if you were ordinarily resident in the UK. However, from 6 April 2013, the concept of ordinary residence has largely been abolished for tax purposes.

Warmest regards,
FA

Your_Hero

gallygirl wrote: »

Aw .

OK, so if my rental income does not count that means as I'm not earning I can still contribute 3.6k?

What about if I earn a little bit (say £500 from online work) - what would happen then?

No unfortunately you cannot even open a pension in the UK as you are a non-resident.

If I've earned say 30k from employment (before I give it up) in the tax year, can I pay a lump sum in, in addition to existing employee contributions and regular SIPPS payments, say up to 30k overall, staying below the Lifetime Allowance thresholds? Could I do that after I've left work but in the same tax year?

Should be ok as you would still be a resident. Be aware of the Annual Allowance of £40k (as well as the LTA £1.25m...)

Finally, what does 'resident in the UK mean'? Sounds obvious but if I am classed as a UK resident (e.g. still retain UK base, bank accounts etc) does that count, or does it literally mean 'resident in the UK'?

Thanks dunston, helpful as always :T.

There's a new test for UK residency (Statutory Residence Test SRT)
http://www.accountingweb.co.uk/article/new-statutory-residence-test-explained/544622

gallygirl

Thanks all, Would be a resident at least for the first year according to all the advice in the links, then it will depend on a number of factors so need to wait and see how things pan out.

JasonPr

When you become non-resident you can still contribute 2880 and the state will to up by 720 for 5 tax years. Only for 5 years though.

atush

If you change your rentals into a company business with you as an employee, you might be able to use your income for pension. but the buying and selling etc would cost more than your tax saving I think if you hold the properties as an individual now

but again that will depend on your tax status which is not clear.

Basically, if you dont pay tax you cant get tax relief (other than the 2880/3600 pension deal).

gallygirl

JasonPr wrote: »

When you become non-resident you can still contribute 2880 and the state will to up by 720 for 5 tax years. Only for 5 years though.

Bumping this with a link for myself:

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm13103020.htm

gallygirl

Another question:

I can pay 2.8k into a pension and have basic tax relief added for 5 years, 3.6k in total per annum.

So, option 1:
Year 1 pay in 3.6k to pension A
Year 2 pay in 3.6k to pension A
Year 3 cash in pension A to ensure less than 10k. Question - I assume as this is treated as a lump sum it is all tax free?
Year 3 start pension B and pay in 3.6k.
Year 4 pay 3.6k to pension B
Year 5 cash in pension B
Year 5 start pension C - but this only has a total pot of 3.6k

In theory would this work or would recycling rules stop it? In which case:
Option 2:
Year 1 open pensions A, B and C
Pay in 1.2k to each in years 1 - 5.
End of year 5 (or sooner if very good growth!) cash all 3 in (I'm aware you can have a maximum of 3).

I prefer option 1 as would give earlier access but better growth potential with 2nd and no recycling issues.

I also have 2 pension pots I'd probably be taking a lump sum from during the period and again would not want to fall foul of recycling rules but with option 2 the 3 pots would already be up and running before I took the lump sums.

My aim is take advantage of the tax breaks but get the money out asap before the rules are changed again. Not that I don't trust future governments of course.......

Thanks.

atush

3 is NO. It is not all tax free. It is 25% tax free, and the other 75% taxed as income.

and are you aware re your rentals, that HMRC are going to withdraw the PA from all UK ex pats as regards their rental income?

AFAIK, you would not be bothered by recycling limits, but you will have higher costs not just saving into pension A for 6 years.