Can you reduce UK income tax to zero by paying into SIPP when moving abroad? 13 November 2022 at 12:31PM in Cutting tax 4 replies 105 views

Ray_Singh-Blue

Hi all, please can I sense-check this?

Say someone left the UK to work overseas on 31st August 2022.
From 1st September they are not liable to pay UK.

Their UK income this year for tax purposes will be £15973
Personal allowance of £12570 means they will owe basic rate tax on £3403, which is £680.

How much do they need to pay into a SIPP to gain £680 of tax relief?
Is it 80% of £3403 = £2722?

Thanks

purdyoaten2

Regardless - any payment won’t reduce tax to zero. If you paid 2722 into a SIPP the government will increase the contribution to 3403 - that’s how the tax relief is obtained. You still would have paid £680 in tax. 

Jeremy535897

People don't seem to realise that the end result is the same, though. Under the old retirement annuity scheme, you would have had to pay £3,403 into the pension scheme. End result is £3,403 paid in less £680 tax relief, leaving the taxpayer £2,722 worse off and the pension scheme £3,403 better off.

Under the personal pension regime, the taxpayer pays £2,722 into the pension scheme, and the government pays £360 into the pension scheme, so the taxpayer is £2,722 worse off and the pension scheme is £3,403 better off. Exactly the same result, because effectively the government is simply paying the pension scheme the £680 tax suffered by the individual.

Dazed_and_C0nfused

Although with RAS the "someone" could pay say £12,000 into the pension and get tax relief of £3,000 added even though they only paid (and will still pay) £680 in tax.

Assuming at least £15k of the earnings qualify for pension contribution purposes.

Jeremy535897

Yes. Even if you have no qualifying earnings, you can still pay £2,880 in contributions, net of tax.