Tax Relief Help please

cashkingzac

Sorry to have to ask this but keep reading different articles and ideally want to be clear so don't break any rules. 

Looking at getting a SIPP for some additional pension rather than just work scheme for other half. What I need to understand is what is the most she can pay into the SIPP to get maximum tax relief.

If we assume she will earn 28k this tax year, but pays 4k via salary sacrifice (so 24k gross). Her work pay in 1k into her scheme, so can she pay in 23k, or is it less due to tax relief she would get on this payment.

Also assuming is there anyway she can pay into her scheme for previous tax years (last tax year she earned similar amount but only paid 2k into scheme, with 1k from her work on top).  

Really would appreciate any help as read so many articles and effectively we are trying to find the amount she could pay into to maximise her pension this year.

Dazed_and_C0nfused

Salary sacrifice means she isn't paying anything, it will be £5k in employer contributions.  If she checks her pension she will see that no tax relief is being added as none is due on employer contributions.

On that level of income she won't be able to use carry forward (of annual allowance), she will be limited by her earnings, the £24k.

How much was she hoping she might contribute?

cashkingzac

Dazed_and_C0nfused said:

Salary sacrifice means she isn't paying anything, it will be £5k in employer contributions.  If she checks her pension she will see that no tax relief is being added as none is due on employer contributions.

On that level of income she won't be able to use carry forward (of annual allowance), she will be limited by her earnings, the £24k.

How much was she hoping she might contribute?

Thanks, this tax year she wants to max out (she has some spare money), so can she pay in 24k and get tax relief on top of that (so that would make it around 30k into the SIPP this way), or would she be restricted to £19,200 and then get tax relief to take her to the 24k??

Dazed_and_C0nfused

It would be £24k gross, £19,200 from her plus £4,800 in pension tax relief.

It won't make any difference to her own income tax liability but the fact she won't have paid £4,800 in tax doesn't prevent her getting this in pension tax relief.

ewaste

If pension contributions are made via Salary Sacrifice into a DC scheme. I'd increase the salary sacrifice for a while and live off the savings. It's more tax and cost efficient than using a SIPP.

Albermarle

ewaste said:

If pension contributions are made via Salary Sacrifice into a DC scheme. I'd increase the salary sacrifice for a while and live off the savings. It's more tax and cost efficient than using a SIPP.

As above , she gains on SS contributions by not paying NI on them.
However she can not sacrifice below National Minimum Wage, so if she wants to contribute at the levels indicated, she will still have to make some contributions separately.

OP - Have you considered making additional contributions to her workplace pension rather than a new pension ( in addition to increased SS ) ?
Often workplace pensions have low charges and adequate investment choice for most people, and usually they will be happy to accept additional contributions direct from the employee. Also keeps things simple.
Caveat to that is some workplace pension providers have better customer service, websites etc than others .

cashkingzac

Thanks all, plan is to hopefully max wife's pension contributions for next 10-15 years, so looking at the fees she will pay her workplace versus a SIPP similar to mine will save several thousand pounds. Plan is to maximise salary sacrifce to best limit we can, then open a SIPP in Feb/March to maximise this tax year. Thanks for all your help

Albermarle

so looking at the fees she will pay her workplace versus a SIPP similar to mine will save several thousand pounds. 

Seems a big difference, my SIPP costs more than my workplace/ex workplace pensions, although I have more varied funds in it.

Probably just worth double checking again the charges, taking into account that-

The workplace pension may just have one charge, unlike a SIPP with a platform and investment charge .

The workplace pension may enjoy an employer discount, which might not be immediately obvious from the paperwork. I had an old one costing 1.1% but I later found it there was a 0.55% discount.