SIPP how much can I put in & tax relief

Scarpy

Hi, Looking for some advice with my SIPP.

I'm self employed and this is my first year paying into a SIPP. I've been working for a few years so I have a bit of a pot of money that I can put into it.

I understand that the maximum I can put into my SIPP is 100% of my earnings for that year. Where I am getting a bit confused is trying to understand the amount on which I will receive tax relief. It's the following statement in particular which has me confused (copied straight from the gov.uk website).

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)

Loss of work due to the virus this year means my earnings for the year will be approx £10k. As thats within my tax free amount, does that mean I will only get the tax relief on £2880 deposited into the SIPP? Or can I put in the full £10k and receive the tax relief on the lot?  I've seen the same statement elsewhere but worded as "non earners" rather than "if you do not pay tax"


Would really appreciate any clarity I can get on this subject.

Additionally, when they say you can pay in 100% of your earnings, do they mean pre or post tax and expenses?

Albermarle

The info on the HMRC website is misleading.
You can pay into a pension an amount = to your gross earnings . In practice what this means is that if you earn £10K , you can add £8K to your SIPP and HMRC will add £2K tax relief ( even though you did not pay any tax as £10K is below the personal allowance)

Scarpy

Thanks for the clarification Albermarle, that's really helpful.

What would happen if I were to put in 10K of my own money? I just get tax relief on 8K of it? and then what happens with the overpayment that's been made?

Albermarle

I would hope that any contribution would be your own money 
The source of the money is not relevant ( from savings , earnings , win on the lottery etc ) it is how much you can add that is related to your pensionable earnings .
If you earned £10K and added that amount to your pension the provider would automatically add tax relief of £2500, as they assume that you only add money that is eligible for tax relief.
At some point HMRC will pick up on the fact that you have had too much tax relief and come looking for it back .

Audaxer

Scarpy said:

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)

The statement above seems confusing. As Albermarle says, if you earn say £10,000 and pay no income tax, you can pay up to £8,000 net into a pension and get tax relief of £2,000.  The £2,880 figure is the maximum someone with no earnings can pay into a pension, and they will get tax relief of £720 added.

Scarpy

Thats wonderful,

Thanks for the replies. 

squirrelpie

It appears the OP is talking about the information on https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

I don't know whether it is accurate or not, but it seems to say that if you are self-employed then you need to claim the tax relief. It's a poorly-worded page; I'm always annoyed by text that doesn't specify explicitly whether statements in bullet-pointed lists are separated by 'and' or 'or' and this page also doesn't qualify the full conditions under which the text under the heading 'If you do not pay Income Tax' applies. I for one have sent feedback.

Dazed_and_C0nfused

The bit near the end about non taxpayers is totally wrong and gov.uk seem reluctant to change it despite it being pointed out.

squirrelpie

Dazed_and_C0nfused said:

The bit near the end about non taxpayers is totally wrong and gov.uk seem reluctant to change it despite it being pointed out.

Exactly, it's not non-taxpayers, it's non-earners.