How much into SIPP for low earner ?

Mecb096a

Hi

Does anybody know if my wife can make payment into her SIPP for the past three years ? She has now paid £4800 in during this tax year and we understand that the SIPP company will apply to HMRC totop it up to £6000.

Can she now make back-payments for the past three tax years and pay net (£4800 x 3) = £14,400 into her SIPP for it to be topped upto £18,000 ?

If something seems to good to be true, then it probably is....

M.

dunstonh

Mecb096a wrote: »

Hi

Does anybody know if my wife can make payment into her SIPP for the past three years ? She has now paid £4800 in during this tax year and we understand that the SIPP company will apply to HMRC totop it up to £6000.

Can she now make back-payments for the past three tax years and pay net (£4800 x 3) = £14,400 into her SIPP for it to be topped upto £18,000 ?

If something seems to good to be true, then it probably is....

M.

Does she want to make a contribution of more than £40,000 in this tax year?

if the answer is no to then she cant. (there is other criteria but I suspect that thiis the first blocker)

Mecb096a

Dunstonh,

I am a little confused, if I understand you correctly she can make back-payments if she is paying in more than £40,000 ? is this really what you mean ?

Regards

M

bigadaj

Mecb096a wrote: »

Dunstonh,

I am a little confused, if I understand you correctly she can make back-payments if she is paying in more than £40,000 ? is this really what you mean ?

Regards

M

How much does she earn, that's the limit for contributions unless she earns more than £40k.

Mecb096a

She earns about £6000 per year. We understand that we can pay £4800 into her SIPP and HMRC make it upto £6000.

We have done this for tax year 2016/7.

The question is, can we go back and make payments of £4800 for each the last three tax years (3 x £4800 = £14,400) and expect the tax man to make it upto £18000.

Does this make sense ?

M

greenglide

In order to make pension contributions from a previous years you must have sufficient earnings in the current year to cover this year's contributions as well as the earlier years. You have used up all this year's earnings so you cannot go back.

This only works if earnings are over £40k as then there would be earnings left over.

Mecb096a

Ah, that is an excellent explanation. Thanks.

M

kidmugsy

Mecb096a wrote: »

The question is, can we go back and make payments of £4800 for each the last three tax years (3 x £4800 = £14,400) and expect the tax man to make it upto £18000.

No that's not permitted. She cannot carry back contributions. (Once upon a time one could but that was scrapped decades ago).

She can carry forward annual allowance but that's not relevant to her position.

Ray_Singh-Blue

Although it may not be relevant to the OP's position, there was some talk earlier in this thread about the "annual limit" being £40K

But my understanding is that there is no limit. Say the OP's wife earned £400K, she could contribute the whole lot to her SIPP.

However, it would be subject to tax at her highest marginal rate, which would be 45%, so it would not be a smart move. Is this correct?

zagfles

Ray_Singh-Blue wrote: »

Although it may not be relevant to the OP's position, there was some talk earlier in this thread about the "annual limit" being £40K

But my understanding is that there is no limit. Say the OP's wife earned £400K, she could contribute the whole lot to her SIPP.

However, it would be subject to tax at her highest marginal rate, which would be 45%, so it would not be a smart move. Is this correct?

Pretty much. There's two limits (or 3 if you include the lifetime allowance). They're both effectively a limit on tax relief, rather than a limit you must not exceed.

There's the earnings limit on contributions. This is £3600 or 100% of earnings whichever is greater. You can contribute more but you can't get tax relief - which usually makes it a bad idea as you could pay tax on the way out despite getting no relief on the way in. This limit cannot be carried forwards. It applies just to personal/ /employee contributions, not employer contributions.

Then there's the annual allowance. This is £40k for most people but lower for some eg very high earners and those who've taken pension income flexibly. It includes employer contributions as well as personal, or in the case of a DB scheme the increase in pension value. Unused allowance can be carried forwards from the last 3 years. If you exceed this limit you pay tax on the excess at your marginal rate which basically means no tax relief - so like above generally a bad idea as you'll likely pay tax on the way out.