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Personal allowance, SIPP and tax relief
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gadgetmind
Posts: 11,130 Forumite
in Cutting tax
Mrs Gadgetmind has just got a job, which is nice.
She hasn't been working so savings etc. are in her name and we've been paying in £2880 pa (£3600 gross) into her SIPP.
She'll be earning just under the personal allowance, but interest etc. would take her over this.
If I put her earnings X 0.8 into a SIPP, with HMG then grossing up to her full earned income, it looks to me like she'll still have her full personal allowance for other income.
Did I miss anything?
She hasn't been working so savings etc. are in her name and we've been paying in £2880 pa (£3600 gross) into her SIPP.
She'll be earning just under the personal allowance, but interest etc. would take her over this.
If I put her earnings X 0.8 into a SIPP, with HMG then grossing up to her full earned income, it looks to me like she'll still have her full personal allowance for other income.
Did I miss anything?
I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
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Comments
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gadgetmind wrote: »She'll be earning just under the personal allowance, but interest etc. would take her over this.
If I put her earnings X 0.8 into a SIPP, with HMG then grossing up to her full earned income, it looks to me like she'll still have her full personal allowance for other income.
Did I miss anything?
I think you've missed that it won't work: HMRC have already shelled out earnings X 0.2 into the SIPP. C'est bleedin' ca. However, from April there is going to be a 0% tax band for interest on savings for the first £5k p.a. above her personal allowance - but I can't remember whether that's for codgers or for everyone.Free the dunston one next time too.0 -
gadgetmind wrote: »Mrs Gadgetmind has just got a job, which is nice.
She hasn't been working so savings etc. are in her name and we've been paying in £2880 pa (£3600 gross) into her SIPP.
She'll be earning just under the personal allowance, but interest etc. would take her over this.
If I put her earnings X 0.8 into a SIPP, with HMG then grossing up to her full earned income, it looks to me like she'll still have her full personal allowance for other income.
Did I miss anything?
You are looking for double relief here!
If your wife earns £15000 in this tax year, for example, I believe that £12000 could be placed into the SIPP, grossed up to £15000 by HMRC. That is the relief!
Your wife would still be liable for tax on £5000 after personal allowances are deducted.There are 10 types of people in the world - those who understand binary and those who do not. :doh:0 -
gadgetmind wrote: »If I put her earnings X 0.8 into a SIPP, with HMG then grossing up to her full earned income, it looks to me like she'll still have her full personal allowance for other income.
Did I miss anything?
Her full personal allowance is being used as she will pay no tax on her earnings.
So if I have got this correct, your wife earns (for example) £9500 and £5000 in gross interest. She will therefore pay not tax on her earnings and would be due tax on £4500 of her savings. For this tax year £2880 of that £4500 would be taxed at 10% and the remaining £1620 at 20%.
Meanwhile she could pay £7600 into a SIPP and the SIPP provider would add on £1900 tax relief.0 -
Thanks all. Yes, I want double tax relief, triple if I can manage it!I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
OK, let's play with the MSE tax calculator. Stick in earning £15k pa and paying £1k pcm into a pension. MSE says that she pays £0 tax pa.
Is the calculator wrong? Do I need to check with accountant?I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
gadgetmind wrote: »OK, let's play with the MSE tax calculator. Stick in earning £15k pa and paying £1k pcm into a pension. MSE says that she pays £0 tax pa.
Is the calculator wrong? Do I need to check with accountant?
No you do not - I am afraid that you still do not appear to have understood. You do not enter the pension contributions into the calculator - relief is given through a 'top-up' in the contribution, not as an additional tax-free allowance.There are 10 types of people in the world - those who understand binary and those who do not. :doh:0 -
purdyoaten wrote: »I am afraid that you still do not appear to have understood.
I fully accept that.You do not enter the pension contributions into the calculator
So, if we pay £1k pcm a month (gross) into a pension, we pay £800, which HMG tops up with £200. Surely we enter into the £800 "pension contribution" box? What would you put in this box? Zero?relief is given through a 'top-up' in the contribution, not as an additional tax-free allowance.
Yes, HMG adds £200 so £1000 a month goes into the pension.
The total tax bill is then £0, so my thinking matches the calculator.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
gadgetmind wrote: »I fully accept that.
So, if we pay £1k pcm a month (gross) into a pension, we pay £800, which HMG tops up with £200. Surely we enter into the £800 "pension contribution" box? What would you put in this box? Zero?
Yes, HMG adds £200 so £1000 a month goes into the pension.
The total tax bill is then £0, so my thinking matches the calculator.
For example - earnings £15000 - pension contribution £800 net.
Tax liability - £15000 less personal allowance £10000 = £5000 at 20% rate = £1000.
Pension contribution grossed up to £1000 by HMRC.
There is no further calculation to be made.
If, by some reasoning, one was going to include the gross pension contribution of £1000 in the calculator, there should also be some mechanism of including the £200 tax relief already received - not sure that there is. That is why I would leave it out.There are 10 types of people in the world - those who understand binary and those who do not. :doh:0 -
purdyoaten wrote: »If, by some reasoning, one was going to include the gross pension contribution of £1000 in the calculator, there should also be some mechanism of including the £200 tax relief already received - not sure that there is. That is why I would leave it out.
The reasoning is that the calculators all ask for the pension contribution, and they allow for the grossing up.
MSE calculator is here.
http://www.moneysavingexpert.com/tax-calculator/
Enter £15k gross pay, enter £1000 pcm into pension in advanced options.
Result.
"Earn £15,000 in 2014/2015 and you'll take home £2,155. This means £180 in your pocket a month.
Over the year you'll pay £0 income tax and £845 in National Insurance.
You'd get £1,200/month in your pension fund. "
Try this calculator instead.
http://www.uktaxcalculators.co.uk/
This totally agrees with MSE.
I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
The calculator default option is designed for pension contributions made in an employer/company scheme - not in a personal pension.
MSE calculator- If you pay into a pension via the PAYE system
Edit - I have looked at your second link. Click the 'advanced' tab - choose pension type - 'private'. Salary £15000, tax code 1000L. Enter 1000 in the pension plan - tax due £998.20. Remove the pension plan - tax due £998.20.
That should clear things up!There are 10 types of people in the world - those who understand binary and those who do not. :doh:0
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