Can I claim higher tax relief?

five_o

Hi

I currently earn around £41,000 a year. I also get rental income of roughly £36,000 per year which pushes me into the higher tax rate band.

I have decided to open a SIPP and I have cash savings which I intend to use, however, my understanding is that I can only invest up to £40,000 max per annum. I also understand that I can get tax relief on my pension contributions - basic tax relief of 20% if my income is £43,000 or less and higher rate tax relief of 40% if it is over £43,000.

So my question is, can I claim full higher rate tax relief on my contributions as I am a higher rate tax payer or is it only my earned income that determines the rate of tax relief that I am entitled to?

Many Thanks,

Farcasting

the way you get relief is your basic rate tax band is increasing


so instead of paying 40% on income over £42385 (10600 Personal Allowance and £31785 Basic Rate band 20%)


if you paid 40k into a pension


your basic rate band would be £71785 (£31785 basic rate band + your 40k pension relief) + £10600 Personal Allowance


so effectively if your total income was below £82385 you wouldn't pay any tax at the higher rate ( 40% )

Farcasting

the way you get relief is your basic rate tax band is increasing


so instead of paying 40% on income over £42385 (10600 Personal Allowance and £31785 Basic Rate band 20%)


if you paid 40k into a pension


your basic rate band would be £71785 (£31785 basic rate band + your 40k pension relief) + £10600 Personal Allowance


so effectively if your total income was below £82385 you wouldn't pay any tax at the higher rate ( 40% )

Paul_Herring

You can only claim 40% relief on *earned* income that attracted 40% income tax to begin with, and only that portion that did.

On the face of it, this doesnt apply to you so you cant claim it. Rental income doesnt count.

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

Farcasting

Paul_Herring wrote: »

You can only claim 40% relief on *earned* income that attracted 40% income tax to begin with, and only that portion that did.

On the face of it, this doesnt apply to you so you cant claim it. Rental income doesnt count.

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

?

Farcasting

Paul_Herring wrote: »

You can only claim 40% relief on *earned* income that attracted 40% income tax to begin with, and only that portion that did.

On the face of it, this doesnt apply to you so you cant claim it. Rental income doesnt count.

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

How to work out your adjusted net income
Work out your adjusted net income by following steps 1 to 4 below.

Step 1 - work out your ‘net income’
Add up your taxable income.

Include things like:

money you earn from employment (including any benefits you get from your job)
profits you make if you’re self-employed including from services you sell through websites or apps
some state benefits
most pensions (including the State Pension, company and personal pensions and retirement annuities )
interest on savings and pensioners bonds
dividends from company shares
some rental income
income from a trust
Take off any tax reliefs that apply like:

payments made gross to pension schemes - those that have been made without tax relief
trading losses, for example trade loss relief or property loss relief
This is your ‘net income’.

Your net income is then adjusted - steps 2 to 4 below.


https://www.gov.uk/guidance/adjusted-net-income

Alice_Holt

Farcasting wrote: »

How to work out your adjusted net income
Work out your adjusted net income by following steps 1 to 4 below.

Step 1 - work out your ‘net income’

Net Income is NOT equivalent to "earned" income .
Your post is not relevant to the question the OP asked, I'm afraid.

Have a careful look at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#IDAN30KF

For instance, you seem to imply that pensions can be included in total earnings for the purpose of calculating tax pension relief, .......but..............
........."For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings."
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#IDAN30KF



Eaned income does however include:
"income from a UK and/or EEA furnished holiday lettings business, which is chargeable under Part 3 ITTOIA 2005 (applies if the business is conducted individually, or as a partner acting personally in a partnership)
a UK furnished holiday lettings business means a UK property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005).
an EEA furnished holiday lettings business means an overseas property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005) in one or more EEA states.
in either case if there is a letting of accommodation only part of which is holiday accommodation, a just and reasonable apportionment is to be made to determine the amount of the income from that business that is to be counted."

Source : https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#IDAN30KF

Farcasting

Alice_Holt wrote: »

Net Income is NOT equivalent to "earned" income .
Your post is not relevant to the question the OP asked, I'm afraid.

Have a careful look at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#IDAN30KF

For instance, you seem to imply that pensions can be included in total earnings for the purpose of calculating tax pension relief, .......but..............
........."For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings."
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#IDAN30KF



Eaned income does however include:
"income from a UK and/or EEA furnished holiday lettings business, which is chargeable under Part 3 ITTOIA 2005 (applies if the business is conducted individually, or as a partner acting personally in a partnership)
a UK furnished holiday lettings business means a UK property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005).
an EEA furnished holiday lettings business means an overseas property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005) in one or more EEA states.
in either case if there is a letting of accommodation only part of which is holiday accommodation, a just and reasonable apportionment is to be made to determine the amount of the income from that business that is to be counted."

Source : https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#IDAN30KF

For instance, you seem to imply that pensions can be included in total earnings for the purpose of calculating tax pension relief

I'm not implying a pension is classed as earnings, I'm saying his income + property income is classed as taxable income.

xylophone

http://www.pruadviser.co.uk/content/knowledge/technical-centre/tax_relief_members_contributions/

Relevant UK Earnings
The levels of tax relief available depend on the member's Relevant UK Earnings in the current tax year. From 6th April 2016 this will also include an assessment of the member’s “adjusted income” this is detailed in the section headed “Reduction in Pensions Tax Relief for Higher Earners”within our Annual Allowance page.

These are the earnings available to base a pension contribution on. Generally, all earned income is relevant earnings.

It is sometimes easier to think about what is not relevant earnings and this includes pension income, dividends and most rental income.

HMRC define relevant earnings as:

employment income such as salary, wages, bonus, overtime, commission (providing it is chargeable to tax under Section 7(2) ITEPA 2003)
income chargeable under Part 2 ITTOIA 2005, that is income derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership)
income arising from patent rights and treated as earned income under section 833 (5B) ICTA 1988
general earnings from an overseas Crown employment which are subject to tax in accordance with section 28 of ITEPA 2003

rental income is generally not relevant earnings but some rental income may be included if it is in respect of UK or EEA furnished holiday lettings business
Where relevant UK earnings are not taxable in the UK due to double taxation agreements they are not relevant earnings.

Alice_Holt

Farcasting wrote: »

I'm not implying a pension is classed as earnings, I'm saying his income + property income is classed as taxable income.

In post 2 you originally told the OP that he could include his rental income as "earned" income and therefore he could claim higher tax relief on pension contributions.
This prompted Paul Herring to correct your original unedited misleading post.
It also prompted me to quote the HMRC manual re furnished holiday lettings business.

I'm pleased to see that you have now edited this post and removed the incorrect info you posted, even if you have just replaced it with a later post.

If you post incorrect information, you can expect to be corrected.

Your 3rd post on taxable Income is not relevant to the question the OP asked, I'm afraid.

Farcasting

Alice_Holt wrote: »

In post 2 you originally told the OP that he could include his rental income as "earned" income and therefore he could claim higher tax relief on pension contributions.
This prompted Paul Herring to correct your original unedited misleading post.
It also prompted me to quote the HMRC manual re furnished holiday lettings business.

I'm pleased to see that you have now edited this post and removed the incorrect info you posted, even if you have just replaced it with a later post.

If you post incorrect information, you can expect to be corrected.

Your 3rd post on taxable Income is not relevant to the question the OP asked, I'm afraid.

His question is about PPR, my first post was incorrect so yeah i'll admit that hence the reason for editing,

He wants to know if paying into a pension he can claim tax relief,

here is some proof of how self assessment works rather than quoting random legislation that has literally nothing to do at all with it.

https://i.gyazo.com/b6fa3213db4a5a2584665886c3f8ddf5.png