SIPP annual allowance and salary cap - gross or net of tax?

aroominyork

Am I right in thinking that:
- the £40,000 annual allowance takes into account tax reclaimed at source, so a basic rate taxpayer can pay in a maximum of £32,000
- the salary cap does not take into account tax reclaimed at source, so someone with a salary of £32,000 can pay in £32,000 and have it grossed up to £40,000?

Dazed_and_C0nfused

A basic rate taxpayer or higher rate taxpayer contributing to a "relief at source" scheme could potentially contribute £32,000 which becomes £40,000 with the 25% uplift.

The individuals tax liability has no impact on the tax relief added to the pension, that is always 20% (of the gross).

The only way you can contribute £40,000 (including the tax relief) is if you have pensionable earnings of at least £40,000.

If you only have pensionable earnings of £32,000 then you can only contribute £32,000 (gross).  Under relief at source this would be a personal contribution of £25,600 plus £6,400 tax relief added by the pension company.

Linton

When talking about pension contributions you use gross figures and then convert it to net only to work out how much money you should pay personally.

dunstonh

The key thing to remember is that with pensions, it is the gross amount that matters.  It is not an uplift or a bonus or an increase.  It is a relief.    Always go by the gross figure when looking at the maximums.

milton1970

Don’t forget that you can utilise unused allowance for prior 3 years also - this may help if limited by income level 

Alexland

milton1970 said:

Don’t forget that you can utilise unused allowance for prior 3 years also - this may help if limited by income level 

Surely carry forward allowance is conditional on enough current year relevant earnings?

aroominyork

Alexland said:

milton1970 said:

Don’t forget that you can utilise unused allowance for prior 3 years also - this may help if limited by income level 

Surely carry forward allowance is conditional on enough current year relevant earnings?

Yes, that's right. The carry forward rule lets you bring forward unused elements of the £40,000 annual allowance but you still cannot pay in more than your annual salary each year. So you won't necessarily be able to use up all your carry forward.

Thanks for clarifying, all, that the salary cap is based on after relief at source is added.

ColdIron

milton1970 said:

Don’t forget that you can utilise unused allowance for prior 3 years also - this may help if limited by income level 

If you are limited by income level you can't even use the full £40,000 annual allowance let alone carry forward

MaxiRobriguez

You also are limited to contributions that do not take you under minimum wage. So someone on a £40k salary doing a standard working week can only make contributions up to about £23k annually into their pension.

aroominyork

MaxiRobriguez said:

You also are limited to contributions that do not take you under minimum wage. So someone on a £40k salary doing a standard working week can only make contributions up to about £23k annually into their pension.

I don't understand that at all. Why can someone earning £40k not pay £40k into their SIPP?

Albermarle

aroominyork said:

MaxiRobriguez said:

You also are limited to contributions that do not take you under minimum wage. So someone on a £40k salary doing a standard working week can only make contributions up to about £23k annually into their pension.

I don't understand that at all. Why can someone earning £40k not pay £40k into their SIPP?

I think this £23K figure from a £40K salary ,only applies if you are making contributions from your salary via a salary sacrifice arrangement.