Pension Contribution

MissHap

I understand that i can contribute 100% of my salary to a pension.
If say i earn £10,000 gross and contribute this full amount, does that mean i will get the 20% government contribution, £2000, added to this amount?

lisyloo

No.



From https://www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions#tax-relief-on-your-annual-pension-contributions

If you’re not earning enough to pay Income Tax, you’ll still qualify to have tax relief added to your contributions up to a certain amount.
The maximum you can pay is £2,880 a year. Tax relief is added to your contribution so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this.

There would not be any benfit to you putting any more than £3,600 into a pension.

MissHap

So as a non tax payer i am penalised?

lisyloo

So as a non tax payer i am penalised?

I'd say no - in fact the above is a benefit.


People who pay tax get the tax BACK i.e. they paid it in the first place.

You don't pay tax so you in general you can't have it back.


There is an exception for the £2800, which means your free getting money added, which is suerly a benefit.

MallyGirl

as a non tax payer you can only get tax back (which you haven't paid anyway) on £3600.

I am not sure you are being penalised - the tax man is giving you £720 for nothing

xylophone

If say i earn £10,000 gross and contribute this full amount, does that mean i will get the 20% government contribution, £2000, added to this amount?

Assuming that you are under 75, if you have no relevant earnings you are limited to making a net contribution of £2880 to a "Relief at Source" pension scheme and tax relief of £720 will be claimed by the pension provider and added to your pot.

If you have "relevant earnings " of £10,000, then you can make a net contribution of £8000 to your relief at source pension scheme and the provider will claim £2000 and add it to your pot.

https://www.taxation.co.uk/Articles/2015/06/29/333301/squirrelling-it-away

Tax relief on contributions for the individual is limited to the greater of 100% of relevant UK earnings, or £3,600 gross (the “basic amount”). Basic rate relief, recovered from HMRC by the RPS provider is added to the individual’s pension fund.

Broadly, UK relevant earnings for a tax year are defined as including any one or more of the following types of income, chargeable to UK income tax:

employment income such as salary, wages, bonuses, overtime, taxable benefits-in-kind and commission;
income derived from a trade, profession or vocation (whether individually, or in partnership); and
income derived from the carrying on of a UK (and/or an EEA) furnished holiday lettings business.

the annual allowance (AA) can restrict tax relief.

The operation of the AA, currently £40,000, will impose an income tax charge – the annual allowance charge (AAC) – if a member’s total pension input for a tax year of one or more contributions to an RPS (whether paid individually, by the employer or by a third party) exceeds the AA for the tax year.


Note that earnings are "chargeable to income tax" - the fact that the Personal Allowance means that those earning below the PA may not pay any is irrelevant to this basic point.

https://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator

HappyHarry

MissHap wrote: »

I understand that i can contribute 100% of my salary to a pension.
If say i earn £10,000 gross and contribute this full amount, does that mean i will get the 20% government contribution, £2000, added to this amount?

Not quite.

You can add £10,000 gross to the pension.

So, you contribute £8,000 (net) and the pension provider will claim £2,000 tax relief and add it to your pension, making £10,000 in your pension. You will then still have £2,000 in your bank.

lisyloo wrote: »

No.
From https://www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions#tax-relief-on-your-annual-pension-contributions

There would not be any benfit to you putting any more than £3,600 into a pension.

You are misunderstanding the rules.

lisyloo wrote: »

I'd say no - in fact the above is a benefit.


People who pay tax get the tax BACK i.e. they paid it in the first place.

You don't pay tax so you in general you can't have it back.


There is an exception for the £2800, which means your free getting money added, which is suerly a benefit.

Again, this is wrong.

MallyGirl wrote: »

as a non tax payer you can only get tax back (which you haven't paid anyway) on £3600.

I am not sure you are being penalised - the tax man is giving you £720 for nothing

Again, not correct.

A non-taxpayer can contribute their gross earnings to a pension and still receive tax relief, even if no tax was paid.

*edit - crossed with xylophone above

woolly_wombat

https://www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions#tax-relief-on-your-annual-pension-contributions[/url]

If you’re not earning enough to pay Income Tax, you’ll still qualify to have tax relief added to your contributions up to a certain amount.

The maximum you can pay is £2,880 a year. Tax relief is added to your contribution so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this.

Money Advice Service have got that wrong.

They have confused not earning enough to pay Income Tax with being a non-earner, which is not the same thing.

NoMore

Apparently there is a loophole that 10000 to 11850 earners do fall into where they won't get tax relief but it is to do with the method their employer would make contributions to their pension.

http://www.thisismoney.co.uk/money/pensions/article-5622281/Low-paid-workers-denied-720-year-free-Government-pension-cash.html

MissHap

This seems a very confusing subject as one reply seems to contradict another.
I find it hard to understand that if you are a non taxpayer earning £11849 you are treated differently than a tax payer earning £11851.

kidmugsy

MallyGirl wrote: »

I am not sure you are being penalised - the tax man is giving you £720 for nothing

Rather, the taxpayer is giving her £720 for nothing, plus a free opportunity to whinge about it. Double whammy!