SIPP contributions, 3 year rule.

letspretendforaminute

My ex-wife has a company pension and for the last 3 years, both the employer/employee contributions come to £1000p/month or £12k per annum. If she were to put £80k into her SIPP would she get that grossed up to £100k and all the higher rate relief repaid to her via PAYE in 2019/2020. Her salary is £95k per annum.

Dazed_and_confused

What is allowing her to exceed the earnings limit of £95k?

Why is she waiting until the next tax year to obtain any higher rate tax relief due?

What country is she resident in for tax purposes, Scotland or rest of the UK?

Is paying that much in the current tax year and obtaining just basic rate tax relief on a large chunk of it the best option from a tax perspective? Assuming of course she will continue to earn at a similar level?

Not that tax benefits is the only consideration for such a sizeable investment

letspretendforaminute

What's the earning limit?

England.

From past experience of making contributions her PAYE tax code was adjusted the year following the lump sums to account for the money, so in theory her net pay will be £1,667. £7k per month thereabouts as opposed to £5.5k.

Dazed_and_confused

You need to do a bit of reading on earnings limits and the carry forward rules.

Also, tax relief for pension contributions is never ever given by an adjustment to a different year's tax code.

HMRC may assume similar payments will be made in a later year and provisionally allow tax relief for that in the later years tax code but that is provisional relief for the later year, not tax relief for the year the payment was actually made in.

Tax relief for the year the original payment was made in will be given in a variety of ways

Amended tax code for the year of pension contribution with no further revision due

Amended tax code for the year of pension contribution with PAYE calculation (called a P800) issued after the tax year ends for any balancing up which needs to be done

Amended tax code for the year of pension contribution with Self Assessment calculation after the tax year ends for any balancing up which needs to be done

No amended tax code and P800 calculation i.e. you don't inform HMRC in time for a new tax code to be issued for the year the payment was made in

No amended tax code and Self Assessment calculation

letspretendforaminute

I thought I had done the reading, 3+current tax year at £40k is £160k? Less contributions already made. Her salary has gone up in increments from £88k to £95k so there's sufficient earnings to sacrifice.

letspretendforaminute

Back in 2012/2013 £22k gross was paid into her SIPP and HMRC did adjust the tax code for the following year. AFAIK they did not make the payment in a lump sum but she was not doing a self-assessment. That came with the removal of child benefit.

Paul_Herring

If she were to put £80k into her SIPP would she get that grossed up to £100k and all the higher rate relief repaid to her via PAYE in 2019/2020. Her salary is £95k per annum

She can only contribute £95K (gross) minus any contributions already made this tax year, which from the rest of that post indicate £83K (gross.)

She doesn't have enough earnings to contribute £80K net, in order to attract relief.

While allowance may be carried forward over tax years to exceed the £40K limit, earnings cannot - you are still limited by the gross wage regardless of allowance.

letspretendforaminute

Thank you Paul et al

So would she still technically be able to contribute £80k (as her gross earnings will have been £95k for this year) and get the higher rate relief on all or only the part down to the where the higher rate tax threshold kicks in?

Paul_Herring

So would she still technically be able to contribute £80k

Gross, yes. Net, no. After all tax relief, that number cannot exceed the gross wage (minus any contributions and tax rebates made so far this year.)

get the higher rate relief on all or only the part down to the where the higher rate tax threshold kicks in?

You can only get the extra 20% of the 40% relief on contributions that attracted a 40% income tax rate to begin with, so the latter.

The rest is restricted to 20% relief which, in contrast to the above, will attract 20% even on wages that weren't taxed at 20% (i.e. that below the tax free allowance.)

Pun

letspretendforaminute wrote: »

I thought I had done the reading, 3+current tax year at £40k is £160k? Less contributions already made. Her salary has gone up in increments from £88k to £95k so there's sufficient earnings to sacrifice.

If she's making contributions by salary sacrifice, remember that she cannot normally sacrifice so much that it takes her below minimum wage levels.