Over-contributing to SIPP?

conradmum

I'm currently drawing my (small) Teacher's Pension, and I'd like to contribute to a SIPP. I can afford to contribute £20000, due to a gift, but my self-employed earnings this year aren't likely to exceed £27000. Can I put £20000 into my pension or will I be contravening the regulations?

Albermarle

If you are truly self employed and not a director of a very small company for example , then you can contribute up to your earnings limit . Taking into account that the SIPP provider will add basic rate tax relief.
So you can add £21, 600 if your earnings were actually £27K .
To add £20K your minimum earnings would have to be £25K . No problem to add the money even though you have not actually earned that amount this tax year yet. As long as you are confident you will reach that amount .

garmeg

Albermarle said:

If you are truly self employed and not a director of a very small company for example , then you can contribute up to your earnings limit . Taking into account that the SIPP provider will add basic rate tax relief.
So you can add £21, 600 if your earnings were actually £27K .
To add £20K your minimum earnings would have to be £25K . No problem to add the money even though you have not actually earned that amount this tax year yet. As long as you are confident you will reach that amount .

Even if he were a director it should still be OK as long as his or her earnings from that company (earned income, excluding dividends) are at the levels indicated.

Prism

garmeg said:

Albermarle said:

If you are truly self employed and not a director of a very small company for example , then you can contribute up to your earnings limit . Taking into account that the SIPP provider will add basic rate tax relief.
So you can add £21, 600 if your earnings were actually £27K .
To add £20K your minimum earnings would have to be £25K . No problem to add the money even though you have not actually earned that amount this tax year yet. As long as you are confident you will reach that amount .

Even if he were a director it should still be OK as long as his or her earnings from that company (earned income, excluding dividends) are at the levels indicated.

Earnings and dividends don't matter when contributing to a pension from a limited company - only the maximum of 40k.

garmeg

Prism said:

garmeg said:

Albermarle said:

If you are truly self employed and not a director of a very small company for example , then you can contribute up to your earnings limit . Taking into account that the SIPP provider will add basic rate tax relief.
So you can add £21, 600 if your earnings were actually £27K .
To add £20K your minimum earnings would have to be £25K . No problem to add the money even though you have not actually earned that amount this tax year yet. As long as you are confident you will reach that amount .

Even if he were a director it should still be OK as long as his or her earnings from that company (earned income, excluding dividends) are at the levels indicated.

Earnings and dividends don't matter when contributing to a pension from a limited company - only the maximum of 40k.

I was referring to an employee contribution here, not a company one (the latter of which would usually be more tax efficient - but he wanted to invest a windfall, which he could do via his company obviously, if he has one but unlikely if really self employed).

conradmum

Thanks for your comments. To be clear, I'm operating as a sole proprietor.

garmeg

conradmum said:

Thanks for your comments. To be clear, I'm operating as a sole proprietor.

In that case Albermarle's explanation is sufficient.

michaels

Slightly off topic but if the op were drawing from a dc pension rather than a db wouldn't their annual allowance have been reduced to 4k. Is this another advantage of db pensions over DC?

garmeg

michaels said:

Slightly off topic but if the op were drawing from a dc pension rather than a db wouldn't their annual allowance have been reduced to 4k. Is this another advantage of db pensions over DC?

Yes, but he is drawing a teacher's pension which is DB.

Note that if you use DC to buy a lifetime annuity (not drawdown) then the Reduced MPAA of £4,000 does not apply.

conradmum

A related question: What happens if I don't achieve my predicted income but a lower amount? Then I will have fraudulently claimed excess tax relief, right? 

Marcon

michaels said:

Slightly off topic but if the op were drawing from a dc pension rather than a db wouldn't their annual allowance have been reduced to 4k. 

Only if their drawings exceeded their tax free lump sum amount.