None tax payer??

koops

Hello...please can you clear up this confusing point.My wife earns around £9000 a year and is therefore a non taxpayer. For the past two years she has paid £6500 into a sipp,tax relief of £1625....£8125 gross.But,being a non taxpayer I thought her maximum contribution could only be £2880..£3600 gross...Is my wife not breaking any rules..regards koops

squirrelpie

No, the limit is her earnings per year, not the amount of tax she pays. £3600 is a backstop figure if her earnings are less than that.

molerat

It is earned income that counts, not tax paid. She is able to contribute up to her earned income so £7200 which would be grossed up to the £9K. The £2880 figure is only for those with less than £3600 earned income.

Aretnap

She can pay in (gross) up to her relevant income each year and get "tax relief", in spite of being a non-taxpayer. Relevant income is basically earned income (eg salary) as opposed to unearned income (interest, dividends, rental income, state benefits etc). So assuming by "earns" you mean salary, she's fine.

If she has no relevant income, or her relevant income is below £3600 then she can pay in up to £3600 gross per year. This is occasionally misunderstood as meaning the maximum that a non-taxpayer can pay in, but what matters is actually her relevant income, not whether she pays tax.

(Third reply, obviously I type too slowly and/or waffle too much)

Berkshire_Beancounter

That's an interesting one, as some websites aren't that clear, simply saying you can pay in an amount up to the level of your earnings.

However the Money Advice Service and the HMRC website both confirm if you don't earn enough to pay income tax, you are restricted to the £2880, £3600 gross that you have in mind...

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

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

Th HMRC web page also says:

"It’s up to you to make sure you’re not getting tax relief on pension contributions worth more than 100% of your annual earnings. HM Revenue and Customs (HMRC) can ask you to pay back anything over this limit."

Although your wife isn't paying in more than her annual earnings, I would put money on the fact that HMRC expect the onus to be on the individual not to contribute more than they are entitled to, in this case £2880.

It might take a while for HMRC to join the dots but if I were your wife I wouldn't pay more into my pension than £2880 in the future and it might be worth 'fessing up to HMRC that contributions were made in error, before they catch up with her. Although there are undoubtedly posters on this forum better versed in the ways of HMRC than me...

Berkshire_Beancounter

Whilst I was composing my earlier post I see some other replies came to a different conclusion to me.
Interesting how I interpreted HMRC's webpage differently: their website says:

If you do not pay Income Tax
You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

- you do not pay Income Tax, for example because you’re on a low income
- your pension provider claims tax relief for you at a rate of 20% (relief at source)

Hence my response was that the maximum contribution for tax relief was limited to £2880 (£3600 gross) because the OP's wife is on a 'low' income and doesn't pay income tax. Happy to be corrected if I've missed something.

Paul_Herring

However the Money Advice Service and the HMRC website both confirm if you don't earn enough to pay income tax, you are restricted to the £2880, £3600 gross that you have in mind...

They really don't. Even the bit you quoted explicitly doesn't say it:

"It’s up to you to make sure you’re not getting tax relief on pension contributions worth more than 100% of your annual earnings. HM Revenue and Customs (HMRC) can ask you to pay back anything over this limit."

----

Hence my response was that the maximum contribution for tax relief was limited to £2880 (£3600 gross) because the OP's wife is on a 'low' income and doesn't pay income tax

The bit you quoted specifies getting the tax relief on that first slice automatically. It doesn't contradict getting it for bits after that slice up to your gross earnings, which the previous quote explicitly allows.

Aretnap

Berkshire_Beancounter wrote: »

However the Money Advice Service and the HMRC website both confirm if you don't earn enough to pay income tax, you are restricted to the £2880, £3600 gross that you have in mind...
https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

The HMRC website does not say that. It says

"You can get tax relief on private pension contributions worth up to 100% of your annual earnings"

Note the lack of any form of caveat about the need to be a taxpayer. Later on it does say "If you do not pay Income Tax you still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year" which is admittedly badly worded, but does not actually say that your contributions are capped at the lower amount.

Hopefully someone can post the actual legislation - the gov.uk website is not the law and does contain a number of errors and badly worded statements.

I would add that if your reading were correct, the policy would make no sense. It would mean that someone who earned the personal allowance of £11800 (IE a non-taxpayer) would be restricted to paying in £2880 and claiming £720 of tax relief; however someone earning £11801 could pay in the whole lot (gross) and claim £2300.20 in tax relief... despite having paid only 20p in tax. This would be rather absurd. If the intention were to restrict the amount of untamed income being paid into pensions it would make more sense to cap contributions at the amount of relevant taxed income, or to cap tax relief at the amount of tax you had actually paid.

Paul_Herring

This would be rather absurd.

This is taxation legislation we're talking about...

I'm sure the regulars on here could come up with any number of extant absurd policies going on in the tax system that are actually things.

(1 earner on £60K, no child benefit, two earners on £40K each, all of it to pick one at random.)

londoninvestor

Berkshire_Beancounter wrote: »

Whilst I was composing my earlier post I see some other replies came to a different conclusion to me.
Interesting how I interpreted HMRC's webpage differently: their website says:

If you do not pay Income Tax
You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

- you do not pay Income Tax, for example because you’re on a low income
- your pension provider claims tax relief for you at a rate of 20% (relief at source)

Hence my response was that the maximum contribution for tax relief was limited to £2880 (£3600 gross) because the OP's wife is on a 'low' income and doesn't pay income tax. Happy to be corrected if I've missed something.

That HMRC webpage seems wrong to me - which would be pretty bad!

Their manual however says:

HMRC wrote:

Section 190 Finance Act 2004

The maximum amount of contributions on which a member can have relief in any tax year is potentially the greater of:

the ‘basic amount’ - currently £3,600, and
the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.

That latter view (i.e. that you get relief up to your total earnings) seems to be backed up by the legislation - which is what is definitive.

s190 of the Finance Act 2004:

FA2004_s190 wrote:

190 Annual limit for relief

(1) The maximum amount of relief to which an individual is entitled under section 188 (relief for contributions) for a tax year is (subject as follows) the amount of the individual’s relevant UK earnings which are chargeable to income tax for the tax year.

And section 192 then explains that tax relief is paid at the basic rate for the year - regardless of the taxpayer's marginal rate. There's then a clause that allows for higher rate taxpayers to get additional relief on top of the basic rate; but there's no corresponding clause which removes the relief for non-taxpayers.

FA2004_s192 wrote:

(1) Where an individual is entitled to be given relief in accordance with this section in respect of the payment of a contribution under a pension scheme, the individual or other person by whom the contribution is paid is entitled, on making the payment, to deduct and retain out of it a sum equal to income tax on the contribution at the basic rate for the tax year in which the payment is made.
...
(4) If (apart from this subsection) income tax or capital gains tax at the higher rate is chargeable in respect of any part of the individual’s total income or chargeable gains for the tax year, on the making of a claim the basic rate limit for that year in the individual’s case is increased by the amount of the contribution.

I'm not an expert on reading this legislation, so please correct me if I'm misinterpreting, particularly the meaning of "earnings chargeable to income tax". I think this means the whole earnings, not just the part in excess of the personal allowance, but if I'm wrong in that, then my overall conclusion is wrong.

londoninvestor

Aretnap wrote: »

Note the lack of any form of caveat about the need to be a taxpayer. Later on it does say "If you do not pay Income Tax you still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year" which is admittedly badly worded, but does not actually say that your contributions are capped at the lower amount.

I suppose it's not incorrect in a literal sense - but if I say "the first £2,880", the way language is used in practice means I'm giving a strong unspoken implication that I mean "the first £2,880, and not the rest".

(The so-called "maxim of quantity". Going a bit off topic now though...)