SIPP maximum annual investment allowed ?

bab_bob

Hi,
am self employed and earn approximately £15000 per annum . Not very much left from here each year to pay into a pension that's for sure. I do however have approximately £100,000 in various cash deposits earning very little interest. I was interested to know how much I can pay into a SIPP and gain tax relief each year based on my current gross earnings of approximately £15000 per year.

many thanks for any help.

anselld

You can pay in £12,000 net, ie £15,000 gross.

bab_bob

thanks for the quick response. This has always troubled me though as that suggests me receiving tax relief of £3000 but my tax bill from my £15000 income isn't taxed as much as £3000; its nearer to £1200 . Can I still receive this £3000 tax relief despite my tax bill not being as much as that ? Hope that makes sense.

thanks once again.

robin61

Bob you can't pay any more in (gross) than you earn.
Are you married ? If so you could also look at a pension for your wife if she hasn't got one already. Or if she has maybe put a bit more in ? Nice to have two incomes in retirement to make the most of the tax free personal allowance before you start paying income tax.

robin61

bab_bob wrote: »

thanks for the quick response. This has always troubled me though as that suggests me receiving tax relief of £3000 but my tax bill from my £15000 income isn't taxed as much as £3000; its nearer to £1200 . Can I still receive this £3000 tax relief despite my tax bill not being as much as that ? Hope that makes sense.

thanks once again.

Whatever you put in will automatically be topped up by the pension provider. So if you put £12k in they will add £3k to it to make it up to £15k. It makes no difference that you have not paid as much as this in tax.

bab_bob

all this info is very good. thank you very much.

catflap11

Have you paid into pensions at any point in the past? if so you may be able to carry forwards some of your unused contributions.

The principle is simple: if you haven’t used your full annual allowance in any of the last three tax years, carry forward allows you to make up for that and contribute up to £170,000 this tax year.

However, there are some restrictions. To qualify for carry forward, you must also:

Have had a pension in each of the years from which you are carrying forward, even if you haven't contributed to it (the State Pension doesn't count);
Have earnings of at least the amount you are contributing. For instance, to make a contribution of £100,000 and receive up to £45,000 tax relief you must have earnings of at least £100,000 this tax year.

jamesd

bab_bob wrote: »

This has always troubled me though as that suggests me receiving tax relief of £3000 but my tax bill from my £15000 income isn't taxed as much as £3000; its nearer to £1200 . Can I still receive this £3000 tax relief despite my tax bill not being as much as that ?

Yes, that's fine and it's how the system is designed to work. Nothing remotely dodgy going on. Pensions are good for society and potential future liabilities for pension payments so the system is quite friendly to them at the lower levels of earnings.

Even a person with no job and paying no income tax can get tax "relief" at basic rate on £2880 of pension contributions a year.

PensionTech

Have you paid into pensions at any point in the past? if so you may be able to carry forwards some of your unused contributions... Have earnings of at least the amount you are contributing. For instance, to make a contribution of £100,000 and receive up to £45,000 tax relief you must have earnings of at least £100,000 this tax year.

The OP has already stated their earnings, which are lower than the Annual Allowance, so carry forward does not apply in this case.

zagfles

catflap11 wrote: »

Have you paid into pensions at any point in the past? if so you may be able to carry forwards some of your unused contributions.

The principle is simple: if you haven’t used your full annual allowance in any of the last three tax years, carry forward allows you to make up for that and contribute up to £170,000 this tax year.

However, there are some restrictions. To qualify for carry forward, you must also:

Have had a pension in each of the years from which you are carrying forward, even if you haven't contributed to it (the State Pension doesn't count);
Have earnings of at least the amount you are contributing. For instance, to make a contribution of £100,000 and receive up to £45,000 tax relief you must have earnings of at least £100,000 this tax year.

That's the rules for the annual allowance.

There's a completely separate limit, the tax relief limit, of 100% of "relevant earnings", or £3600 if greater. This cannot be carried forwards. So if the OP's earnings are £15k then he can't put more than £15k gross into his pension.

This confuses a lot of people as there's lots of simplistic rubbish out there which tries to combine the limits, eg you can easily find drivel saying something like "the limit is your earnings subject to £3600 min and £40k max". Then they read about carry-forwards and think they can use it. But carry forwards only applies to the annual allowance, not the tax relief limit.

There are other differences like the AA includes employer contributions but the tax relief limit doesn't. They are separate limits and need considering separately.

sebthered

quote 'The OP has already stated their earnings, which are lower than the Annual Allowance, so carry forward does not apply in this case.' unquote

Don't understand what you are saying here? he is entitled to carry forward !