I think I can pay more into my SIPP, am I correct?

CricketLady

Good afternoon,

I wonder if someone would mind casting their eye over the following and confirming (or not!) that what I think is correct? I have researched and researched but keep going round in circles.

Main belief is that I am going to have to pay tax this year and that this will enable me to put more than 2880 into my SIPP, which I hope is the case.

I am a full time mum but set up a (very small time!) business teaching maths twelve years ago (ex primary teacher). This year I made 10050.50, previous years it has been just 6000ish so haven't paid tax since I left teaching to have first baby 18 years ago. I also earned 894. selling Avon and 1112. marking exam papers for the National Foundation for Education Research. Therefore my income for 2018/19 was 12056.50 so I am aware that I am over my personal allowance of 11850. I also made 1555. in interest, bringing my total to 13611.50. I have been paying my national insurance contributions voluntarily and putting 240. per month into my SIPP which is doing really well with Hargreaves Lansdown. I also put 20000. every year into my S&S Isa, also with HL, (husband is on 90k per year so I stash it away from the joint account.)

I was pleased to see that I was going to go over my 11850 personal allowance because I thought this would mean I could put more than the 2880 away into my SIPP but when I read the page on this website about how there is actually a 6000. amount for interest, so the threshold for paying tax would be 17850, I am wondering if I am correct in assuming that if I put 10k away into my SIPP I would get 20% tax relief on this (whereas I don't if I put it into the ISA, which I am also using as future pension.) I say 10k because I'd like to put away my entire teaching money. I have no expenses except husband's birthday present (!) as he earns enough to pay all our bills etc. and with teaching I maybe spend about 20 pounds per year just on new resources and work from home so don't have any overheads other than an extra 100 ish on the home insurance.

Next year I anticipate earnings being the same except that I will earn about 4k in interest (lots of fixed rate savers maturing/paying out.) Would I be able to put 10k into my SIPP this tax year or should I have done it before 5th April, or am I not able to put any extra away for whatever reason?

I promise I tried to research the answer to this myself, I'm not simply being lazy! Any thoughts on this, including something obvious that I have missed, gratefully received. I'm 47 and 3/4 and hoping to remain self-employed for as long as possible as my humble business seems to be doing quite well. I do a self assessment tax return every year.

Thank you so much.

Oh, this is the page that left me a bit flummoxed:

https://www.moneysavingexpert.com/savings/tax-free-savings/

Thank you thank you
Cricket Lady

Marcon

You can pay in up to 100% of your earnings - BUT that includes the tax relief the SIPP provider will claim on your behalf, even if you haven't earned enough to pay tax in the first place. Earn £10,000 and you can pay in £8,000 (because the provider then claims £2,000 on your behalf and adds it to the pot).

Ignore interest; that doesn't count for SIPP contribution purposes.

Your SIPP provider should have a helpline and you could always use that rather than going round in circles!

BoGoF

You have missed the boat for tax year 2018-19 unfortunately.

Dazed_and_confused

but when I read the page on this website about how there is actually a 6000. amount for interest, so the threshold for paying tax would be 17850

You have misunderstood this.

The Personal Allowance is £11,850 (in 2018:19 tax year).

Anything over this is taxed.

But some of it might be taxed at a 0% tax rate.

Therefore my income for 2018/19 was 12056.50 so I am aware that I am over my personal allowance of 11850. I also made 1555. in interest, bringing my total to 13611.50

You will be liable to pay 20%* tax on £206 (£12,056 - £11,850).

The savings interest of £1,555 will be taxed at 0% (the savings starter rate of tax).

*19% if you were Scottish resident for tax purposes in 2018:19

All of the above assumes you haven't applied for Marriage Allowance.

CricketLady

Thank you so much to everyone for helping me to gain a better understanding AND for not laughing at me for my ignorance. Please may I clarify my thinking one last time to ensure I've got this?

In 2019/20 I envisage again earning about 12,000 but my savings interest will be about 4000. If I am correct, I will not be eligible for tax as the personal allowance is 12500 and my savings will be taxed at 0%. However, I can pay 8000 into my SIPP instead of 2880 even if I am not eligible to pay tax? Which seems odd as I will be 16000 better off this time next year (although hubby pays enough tax to fund a small country!) I will be punching the air if I've understood this right (at last!)

I will stop pestering you all now! Thank you so much.

And no, no marriage allowance which I've also just learned about thanks to Dazed!

Imelda

CricketLady wrote: »

Thank you so much to everyone for helping me to gain a better understanding AND for not laughing at me for my ignorance. Please may I clarify my thinking one last time to ensure I've got this?

In 2019/20 I envisage again earning about 12,000 but my savings interest will be about 4000. If I am correct, I will not be eligible for tax as the personal allowance is 12500 and my savings will be taxed at 0%. However, I can pay 8000 into my SIPP instead of 2880 even if I am not eligible to pay tax? Which seems odd as I will be 16000 better off this time next year (although hubby pays enough tax to fund a small country!) I will be punching the air if I've understood this right (at last!)

I will stop pestering you all now! Thank you so much.

And no, no marriage allowance which I've also just learned about thanks to Dazed!

That's what I do, plus I put £4K into a LISA which then gets topped up to £5k by the government. I will pay tax this tax year but usually I pay none but get £3k into my pension and LISA.

You could actually put more in your SIPP... as long as your contribution plus 20% tax credit is not more than your earned income.

BoGoF

Yes, forget about the interest - it is of no relevance for this purpose. Whatever your earnings are multiply by 80% and that is what you can physically pay in. Your pension provider will claim the tax relief taking your gross contribution to 100% of your earnings.

Mnd

Forget the comment about marriage allowance, if your husband is a higher tax payer, then it doesn't apply

jamesd

The amount you can pay inn is the work earnings divided by 1.25 to allow for the basic rate tax relief of 20% that is provided by adding 25% to what you pay in.

12000 / 1.25 = 9600 to pay in.

12000 * 0.80 =9600 for basic rate tax even though you don't pay it because of the personal allowance. 12000 / 9600 = 1.25 that you divide by to work out how much you can pay in.

CricketLady

Thank you so much, you've all been incredibly kind and patient.