Tax relief and 100% Earnings limit

taktikback

I'm a little confused about the tax relief limit on "up to 100% earnings" - so here goes -please correct me if I've got it wrong!

I'm 54 and currently earn £43,514 and salary sacrifice down to £13655 - roughly the minimum wage - my employer adds 4% so I actually receive £31592 into my pension fund

I'm looking to benefit by opening a SIPP and contributing £10,000 from other funds. I understand that that will be grossed up to £12500 in the SIPP and that will take the total invested this tax year to £44092 -slightly above the £40k allowance although I have plenty of free allowance for carry forward purposes

My questions are:

1 - Would I need to declare anything to anyone to get the carry forward, or does it just take care of itself?
2 - For the £10,000 I'm putting in, I'm getting £2500 tax relief even though my personal allowance of £11000 means I would only have paid £511 in tax from my actual salary - Is that how it works?

I've tried to read up on this, but only ever see references to contributions up to 100% of earnings -it never refers to personal allowances

Thanks TB

bigadaj

No need to inform anyone of exceeding the £40k annual allowance but keep documentary records as it could get checked by Hmrc, though unlikely.

The pension provider will add the tax relief, so yes you will be getting relief on tax you haven't or wouldn't have paid. It is a bit of an anomaly and is designed to offer relief for non taxpayers, like the £2880 for no taxpayers being grossed up to £3600.

coyrls

For starters if your salary for the current tax year is £43,514, that represents your maximum combined contribution (you and employer) for the current tax year, therefore you can't contribute £44,092.

taktikback

That's great - thanks!

taktikback

coyrls wrote: »

For starters if your salary for the current tax year is £43,514, that represents your maximum combined contribution (you and employer) for the current tax year, therefore you can't contribute £44,092.

I thought that it was the annual allowance of £40000 ( + any carry forward) that governed what the total contribution could be for the individual and the employer?.

In effect, my salary is £13655 because the rest is an employer contribution through salary sacrifice. So I was going to use a £12500 allowance of "earned income" of that by puting in £10k from elsewhere.

xylophone

http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest/employer-contributions

xylophone

See also https://www.gov.uk/tax-on-your-private-pension/annual-allowance

http://www.hl.co.uk/pensions/sipp/pension-carry-forward

coyrls

taktikback wrote: »

I thought that it was the annual allowance of £40000 ( + any carry forward) that governed what the total contribution could be for the individual and the employer?.

In effect, my salary is £13655 because the rest is an employer contribution through salary sacrifice. So I was going to use a £12500 allowance of "earned income" of that by puting in £10k from elsewhere.

No, you are restricted to 100% of your earnings as well, you've even put that in the title of your thread.

taktikback

OK - so employer contributions are counted as earnings then? I hadn't realised that.

coyrls

taktikback wrote: »

OK - so employer contributions are counted as earnings then? I hadn't realised that.

Employer contributions are counted as contributions to set against the 100% earnings limit.

jamesd

taktikback wrote: »

OK - so employer contributions are counted as earnings then?

No, they aren't.

Earnings are loosely the gross pay shown on your payslip. But contributions by an employer are not shown there and do not count as earnings. But they do count towards the 40k limit because they are to a pension scheme from which you benefit.

You need to check both the earnings and the 40k (plus potential carry-forward) rules and be within the limits for both.

If you have earnings of 40k and employer pays in 10k as well then you can pay yourself 40k gross into a pension and the total of you and employer would need 50k of annual allowance to do it, hence needing 10k to be available from the past three years for carry-forward.