Lump Sum into SIPP?

billpaul812

Income this FY is as follows having been made redundant in November.
Salary up to Nov around 32K Gross (pro rata 47K pa)
PILON around £8K Net (12 weeks from start of Nov)
Redundancy payment £67K Gross, £53K Net
Pension Lump Sum £50K
Haven't got it yet but should also be getting £12K lump sum from my AVC

What's the maximum lump sum I can pay into a SIPP?

Linton

How much have (a) you and (b) your employer paid into your pensions so far this tax year? Note that if its a DB pension the total contribution is not the actual amount paid but rather the value gained. This figure should be available from the pension people.

Your total earnings are £32K+£8K (or rather £8K grossed up)+(£67K-£30K)=£77K

That is the earnings limit on all your pension contributions this year. Previous year's earnings cannot be carried forward.

There is also an Annual allowance limit of £40K including your employer's contribution (or DB equivalent). Unused Annual allowance from the 3 previous years can be carried forward.

Assuming you have sufficient Annual Allowance carried forward you can contribute (£77K-your personal contributions so far this year). This figure is then multiplied by 0.8 to get the amount you actually pay in. The missing 20% being added to your pension by HMRC.

billpaul812

Its the LGPS so based on what has been advised here in another thread I think the value gained figure is around £16K.

I would like to pay in (the value of the cheque) £50K. What worries me though is that though I am ok according to the formula, I am only in a position to be able to afford to do so because of what I think is non qualifying income.

By the way its £77K not £87K

Linton

Salary, PILON, and redundancy above the £30K tax free sum all count as qualifying income. The correct term is "relevant" income.

Linton

billpaul812 wrote: »

Its the LGPS so based on what has been advised here in another thread I think the value gained figure is around £16K.

I would like to pay in (the value of the cheque) £50K. What worries me though is that though I am ok according to the formula, I am only in a position to be able to afford to do so because of what I think is non qualifying income.

By the way its £77K not £87K

It doesnt matter where the money actually comes from (unless you get into recycling). It could have come from non relevant earnings, savings, gifts etc etc

billpaul812

Ok, many thanks. So HMRC won't be beating a path to the door then.��

billpaul812

Just to update you I decided to give HMRC a ring. Got through straight away which caught me off guard as I thought the chap who answered was an automated message for a second or two!

Anyway, they were very helpful, I expressed my concerns about recycling (though I don't profess to understand the complexity) and he confirmed what I have been told and that as far as they are concerned as long as I am within the allowance, carry forward and all that (my words not theirs), then I am fine with £50K into a SIPP.

So will just get on with now!

Dazed_and_confused

Are you actually paying £50,000 making a gross contribution of £62,500 or are you paying £40,000 to make a gross contribution of £50,000?

And what are your expectations for higher rate tax relief? From the posts on this thread you won't get 40% relief on all the payment and have even less scope for extra tax relief if you live outside of Scotland.

billpaul812

Paying £50K making a gross contribution of £62,500.

Yes appreciate that I may not get 40% relief on it all, but this isn't just about the tax relief, its about investing capital and trying to secure a small income supplement for a few years.

Dazed_and_confused

Ok, just there are often misconceptions about pension tax relief in some of these threads!

billpaul812

No problem, thanks for the clarification.