HMRC Contribution Limits

thematrix12

Hi all

I understand that I can contribute either £40k a year or 100% of my salary for tax relief in a SIPP. I am a teacher and I have read that the limit is reduced by the amount of pension I already pay and the employers contributions.

I currently pay 7.4% of my salary into a pension. My employer pays just above 16%. Am I right in thinking I put these two percentages together and minus these from my annual salary to calculate my limit?

NoMore

No your teachers pension is a defined benefit pension, and as such your contributions don't go into a pot which you access later.

Basically the rules for working out AA are different. you need to ask your pension provider for the PiP (Pension input Period) amount for your contributions for this year, then take that away from 40k to give the max amount you have left to contribute.

BTW its not 40k or max salary, its whichever is the smaller. You can't contribute 40k if your salary is only 20k.

chucknorris

NoMore wrote: »

BTW its not 40k or max salary, its whichever is the smaller. You can't contribute 40k if your salary is only 20k.

For most that would be correct, but other income also qualifies for relief, which is listed below from the link:
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#qualifying

Relevant UK earnings means any one or more of the following types of income:

employment income, such as: pay, wages, bonus, overtime, or commission - but only if taxable under Section 7(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) - so including:

the part of a redundancy payment above the £30,000 tax exempt threshold in section 403(1) ITEPA 2003. The first £30,000 of the redundancy payment is not classed as employment income so does not count here. But any amount on top of the £30,000 threshold is classed as employment income and so it is also relevant UK earnings. In making this analysis, care is required not to confuse usual wages or pay, pay in lieu of notice or holiday pay, with the redundancy payment when such elements are bundled into a final payment.
benefits in kind which are taxable (applies to employees earning over £8,500, and to directors)
profit related pay (including the part which is not taxable)
Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP) if paid by the employer and taxable under Section 7(2) ITEPA 2003
Permanent Health Insurance (PHI) payments paid by the employer whilst you are still in employment
pay paid by way of Government Securities
pay in the form of units in an authorised unit trust if taxed on the person receiving it
amounts taken off pay to buy partnership shares in a share incentive plan in line with paragraph 83 of Schedule 8 of Finance Act 2000
income from a trade, profession or vocation that is chargeable under Part 2 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)(applies if the activity is conducted individually or as a partner acting personally in a partnership)
income from a UK and/or EEA furnished holiday lettings business, which is chargeable under Part 3 ITTOIA 2005 (applies if the business is conducted individually, or as a partner acting personally in a partnership)

a UK furnished holiday lettings business means a UK property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005).
an EEA furnished holiday lettings business means an overseas property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005) in one or more EEA states.
in either case if there is a letting of accommodation only part of which is holiday accommodation, a just and reasonable apportionment is to be made to determine the amount of the income from that business that is to be counted.
patent income, where the individual alone or jointly devised the invention for which the patent in question is granted, in the following categories:

royalties or other sums paid regarding patent use and charged to tax under section 579 ITTOIA 2005 (intellectual property)
amounts on which tax is payable under section 587 ITTOIA 2005 (sales of patent rights) or section 593 ITTOIA 2005 (death of seller of patent rights), or
amounts on which tax is payable under section 472(5) of the Capital Allowances Act 2001 (balancing charge) or paragraph 100 of schedule 3 to that Act (balancing charges)

chucknorris

thematrix12 wrote: »

Hi all

I understand that I can contribute either £40k a year or 100% of my salary for tax relief in a SIPP. I am a teacher and I have read that the limit is reduced by the amount of pension I already pay and the employers contributions.

I currently pay 7.4% of my salary into a pension. My employer pays just above 16%. Am I right in thinking I put these two percentages together and minus these from my annual salary to calculate my limit?

Have you considered buying additional pension in the TPS, I have already bought the max allowed in the pre 2015 scheme, and when I join the new scheme next year I will buy as much additional pension as I can. But unfortunately not as much as I would like to, because although I have enough overall income, most of it is not 'relevant income'. I also invest in a SIPP, but I consider the TPS additional pension better value (but it is subjective, so draw your own conclusions).

MK62

There is a guide here,

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/the-annual-allowance

with examples, which may help......especially the section "Calculating the value of benefits built up in a defined benefit pension scheme"......

zagfles

thematrix12 wrote: »

Hi all

I understand that I can contribute either £40k a year or 100% of my salary for tax relief in a SIPP.

No, this is totally wrong. See this thread: https://forums.moneysavingexpert.com/discussion/5963411/annual-allowance-question