SIPP tax relief

borneoboy

A quick question I hope I am thinking of investing £20,000 lump sum and £500 per month into a sipp I have not paid anything into a pension scheme over the past 3 years, how will the tax relief affect this? I understand for every £800 I pay the government will top-up with £200 to make 1000. How will the past three years of no pension contributions affect this?

BoGoF

How much do you earn?

SonOf

I understand for every £800 I pay the government will top-up with £200 to make 1000.

For every £1000 you contribute into the pension, the Govt will pay £200 of it, leaving you to pay £800. Pensions are treated as gross with you making the net contribution. Not you making a contribution that gets a bonus.

How will the past three years of no pension contributions affect this?

They wont as you are not contributing enough to activate carry forward. It will go against your earnings in this tax year only.

Brynsam

SonOf wrote: »

For every £1000 you contribute into the pension, the Govt will pay £200 of it, leaving you to pay £800. Pensions are treated as gross with you making the net contribution. Not you making a contribution that gets a bonus.

Although, of course, non-taxpayers can contribute to a pension scheme (within certain limits) and the kindly government will still top up with the equivalent of basic rate tax relief (funded by the kindly taxpayer), which most people would certainly see as some kind of bonus!

Mnd

BoGoF's point needs answering first. Until that is known it's all hypothetical

toothdoctor

You can carry forward any unused annual allowance for the past 3 years, BUT you must have been a member of a pension scheme within theses 3 years. Have you been a member of a pension scheme over the past 3 years? If not then you can't carry any allowance over and your allowance would be £40,000 or as low as £10,000 depending on your earnings (are you subject to tapered allowance). Please note you can't receive tax relief on contributions in excess of your earnings.