How do you get tax relief ?Confused.

Supercalafragalistic

Could someone clarify please, as am confused!

I am a low earner, (about 6k) but have income from savings and a small buy to let property, a total of about 20k.
Next year i will pay about 3k in tax .

If I open a sipp and put in 3k , does that mean i wont have to pay tax? And how do i get the ‘normal’ tax relief on the sipp please? And is it added to my sipp or do i ge it back.
Thanks.

Tom99

If you put £3k net into a SIPP the SIPP provider will claim £750 from HMRC and add that to your SIPP balance so you will have £3,750 in the SIPP.
The amount of income tax you will pay on your earnings, savings and property income will stay exactly the same.

Dazed_and_confused

It isn't really clear if your total taxable income is expected to be £20k or £26k?

But if it's £26k and you are Scottish resident for tax purposes you may get a (very) small bit of additional tax relief on your pension contribution as it will increase the amount of basic rate tax payable. Which would in turn reduce the intermediate (21%) tax payable.

Supercalafragalistic

Tom99 wrote: »

If you put £3k net into a SIPP the SIPP provider will claim £750 from HMRC and add that to your SIPP balance so you will have £3,750 in the SIPP.
The amount of income tax you will pay on your earnings, savings and property income will stay exactly the same.

Hi Tom.....I am unsure as to where I heard the bit about not paying tax on the other income if i put the money into the pension. Does it apply in any situation ie earning from self employment or something? So say if all my income was 20k from self employment, but I owed say 3k in tax, and I put that 3k in a pension would that then reduce my taxable income by that amount?.....or am I dreaming?

Albermarle

As already said if you put £3k in your pension , you will receive tax relief to gross that figure up back to what it was before you paid tax on it . = £750 .
To gain tax relief of £3K , you would have to add £12K to your pension,

Paul_Herring

Albermarle wrote: »

To gain tax relief of £3K , you would have to add £12K to your pension,

The problem here, is the OP doesn't appear to be earning sufficient pensionable earnings to add that £12K; only £6K it seems...

Supercalafragalistic wrote: »

I am a low earner, (about 6k) but have income from savings and a small buy to let property, a total of about 20k.
Next year i will pay about 3k in tax .

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/pension-contributions-the-basics/

Royal_London wrote:

Investment income, property rental income and dividends are not relevant UK earnings.

Supercalafragalistic

This is what i read somewhere,,,i’ve misunderstood it seems. http://https://jf-financial.co.uk/2017/11/16/self-employed-pension-tax-relief/

Dazed_and_confused

Did you miss this paragraph,

If we now look at the question at the beginning of this article, this person is earning roughly £30,000 of self employed profits – assuming they have no other income to consider then they are not in the higher tax band which means they will not save any income tax through their personal tax return by making personal pension contributions, however they will still get the 20% basic tax relief in their pension fund as claimed by their pension provider.

xylophone

You say that you are self employed - you are not in fact employed by your own company?

If not, you need to look to your "relevant earnings" for the purposes of pension tax relief.

See

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

HMRC define relevant earnings as:

employment income such as pay, wages, bonus, overtime, commission (providing it is chargeable to tax under Section 7(2) ITEPA 2003)

income chargeable under Part 2 ITTOIA 2005, that is income derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership)

patent income, where the individual alone or jointly devised the invention for which the patent in question is granted, in certain specific categories
general earnings from an overseas Crown employment which are subject to tax in accordance with section 28 of ITEPA 2003

rental income is generally not relevant earnings but some rental income may be included if it is in respect of UK or EEA furnished holiday lettings business

Assuming that you are indeed self employed and your rental income does not come within the category above, you could contribute up to £4800 to a SIPP and the provider would claim tax relief of up to £1200 and add it to your pot.

Supercalafragalistic

Dazed_and_confused wrote: »

Did you miss this paragraph,

I sure did! Just read the first bit and got excited!

Supercalafragalistic

Hang on a minute...3k in, but 750 paid on top...thats 25 pc...though basic rate is 20pc?