Top up pension

freelunchtoday

I'm thinking of topping up my pension.

Last year I earned £10,000
So, can I top up my pension by £10,000 and receive tax relief on that sum, even though the earnings were below the tax threshold, and so not taxable?

I understand I can take 3 yrs previous earnings into consideration also.

kidmugsy

freelunchtoday wrote: »

I understand I can take 3 yrs previous earnings into consideration also.

no: your £10k limit stands. The carry forward from previous years is helpful only if you ran up against the annual allowance limit of £40k. You don't.

Linton

I dont think it works if you pay £10K into your employer's pension from gross income because that would simply reduce your taxable income.. But it does work if you pay from net income, say into a private pension, even though no tax was actually deducted. In that case you should put in £8000 and the tax man will pay the extra £2K directly into your pension.

freelunchtoday

I suppose I was naively hoping taxable pay equated to gross pay, the lower band being taxed at zero rate!
It's all in the interpretation!

freelunchtoday

Kidmugsy,
Just found this on The Money Advice Service,

''If you are not earning enough to pay Income Tax, you can still receive tax relief on pension contributions up to a maximum of £3,600 a year or 100% of earnings, whichever is greater, subject to your annual allowance. For example if you have relevant income below £3,600, the maximum you can pay in is £2,880 and the government will top up your contribution to make it £3,600.''

Every little helps

kidmugsy

freelunchtoday wrote: »

Kidmugsy,
Just found this on The Money Advice Service,

''If you are not earning enough to pay Income Tax, you can still receive tax relief on pension contributions up to a maximum of £3,600 a year or 100% of earnings, whichever is greater, subject to your annual allowance. For example if you have relevant income below £3,600, the maximum you can pay in is £2,880 and the government will top up your contribution to make it £3,600.''

Every little helps

Do you mean you have no earnings this year? You might have said so.

freelunchtoday

I still find it confusing that you can top up by 100% of your earnings.
If you earn £20,000 then you get tax concession on that amount, the first £10,000 of which (approx) is below the tax threshold.

bigadaj

freelunchtoday wrote: »

I still find it confusing that you can top up by 100% of your earnings.
If you earn £20,000 then you get tax concession on that amount, the first £10,000 of which (approx) is below the tax threshold.

It is odd and a slight anomaly but if you benefit from it and find it worthwhile then consider it.

Linton

freelunchtoday wrote: »

I still find it confusing that you can top up by 100% of your earnings.
If you earn £20,000 then you get tax concession on that amount, the first £10,000 of which (approx) is below the tax threshold.

Getting a tax rebate when you are not actually liable to tax isnt that much of an anomoly because if the money is concerned is significant it will be taxed at 20% when it is withdrawn. Without it there would be a disincentive for the really low paid putting money into a pension.

freelunchtoday

Good point Linton,
I just happen to have earned £10,000 this year and the previous 2 years, so I will go ahead and top up my PPP by £30,000.
So I should expect that sum to be topped up by £6,000?

jem16

freelunchtoday wrote: »

Good point Linton,
I just happen to have earned £10,000 this year and the previous 2 years, so I will go ahead and top up my PPP by £30,000.
So I should expect that sum to be topped up by £6,000?

No you will only get tax relief on £10k as that is your relevant earnings for this tax year. There is no point in contributing £30k.

The most you can contribute is £8k which will be topped up to £10k.