TAX relief on pension for low earners

CRITCHK

Hi please could someone confirm if my understanding is correct in what you can receive in tax relief in personal pension payments.

Non earners can pay £3,600 gross / £2,880 net

Non tax payers can pay their total income or £3,600 what ever is the higher but can only get tax relief for the first £3,600 / £2,880 net paid into a pension.

Basic rate tax payers who earn say £15,000 can pay their total income into a personal pension and benefit of the full amount receiving tax relief so on £12,000 net payment they would get £15,000 gross in a pension?

Is this correct?

Credit-Crunched

CRITCHK wrote: »

Hi please could someone confirm if my understanding is correct in what you can receive in tax relief in personal pension payments.

Non earners can pay £3,600 gross / £2,880 net

Non tax payers can pay their total income or £3,600 what ever is the higher but can only get tax relief for the first £3,600 / £2,880 net paid into a pension.

Basic rate tax payers who earn say £15,000 can pay their total income into a personal pension and benefit of the full amount receiving tax relief so on £12,000 net payment they would get £15,000 gross in a pension?

Is this correct?

Correct, nearly.

However a non tax payer, may earn up to £10,600 and still receive full relief on that amount.

CRITCHK

So if I earn say £7,000. I can pay £5,600 net in my pension and will automatically get £1,400 in tax relief added by my pension provider.

xylophone

You may invest up to the total of your relevant earnings (before deduction of personal allowance) in a Relief at Source pension scheme but will pay this net of basic rate tax.

In your example, where your earnings are £7K, you can make pension contributions of up to £7K gross (£5600 net) and the provider will claim £1,400 for your pension pot and you will pay no tax.

A person may make a net contribution of £2,880 and HMT will add £720, whether or not he has any earnings.

CRITCHK

Thank you both for your replies.

CathA

Just out of interest,if you have earnings but they are LESS than £3600, which figure can you pay into a pension and get tax relief? I've read that it's the lesser of the amounts/higher of the amounts which makes no sense! Thanks.

xylophone

http://www.pilling.co.uk/Self-Invested-Personal-Pensions-%28SIPPs%29-Questions-Answered.htm

"Non-earners or persons earning less than £3600 p.a. :- Contributions of up to £3600 gross (£2880 net) will receive tax relief at 20%."