Who can pay into a SIPP?

kerrick

My SIPP gets director contributions every year from my own company, and will get close to the LTA in a few years time. I am most years a basic rate tax payer, sometimes into higher rate.

Spouse had no pension and is 16 years from state pension age from voluntary contributions as has no income but does things to help with my company from time to time.

What are the options for paying into a SIPP if one is set up? Can I pay into it? Can my company? How could we do this and how much could we pay in? Having left it late it would be good to maximize it now.

dunstonh

SIPPs have no specific rules to them.  They have the same rules as all retail pensions (i.e. stakeholder, personal etc)

What are the options for paying into a SIPP if one is set up?
Can I pay into it? Can my company?

Filling up spouse would seem to be sensible.  How much will depend on how they are set up on the company.   If they do not hold an officer position then they can only receive a pension contribution of an amount in line with expectation for that role.   If they are also a shareholding director, then you can go to £40k employer contributions.

Where there is a joint account, a spouse doesn't really pay into the pension of the other spouse.  Yes, one may be a higher earner but once it goes into the joint account, the original source doesnt really matter.    If there isnt a joint account and it comes from the sole account of the other spouse then its still normally ok but can add extra administration.  Company is best providing the spouse is on it.

Having left it late it would be good to maximize it now.

yes.   retirement planning should be as balanced as possible between spouses.

kerrick

I will ask my accountant about company contributions. Can contributions be made from multiple sources, so if the company pays in £20,000 can I also pay in an amount to add to that? 

The bit about joint accounts and the source. Are you making this point in in the context of the tax relief applied to the contribution, i.e. whatever the tax rates of each spouse, it will be the tax rate of the receiver that is added to the contributions, e.g. if £10,000 is paid in the lower of £2,000 (20%) or £4,000 (40%) will be added to this by the SIPP provider grossing it up to £12,000 or £14,000?

MallyGirl

SIPPs do not gross up to 40%. They deal with the 20% and the rest comes back to the higher rate tax payer via tax return/tax code

Dazed_and_C0nfused

kerrick said:

I will ask my accountant about company contributions. Can contributions be made from multiple sources, so if the company pays in £20,000 can I also pay in an amount to add to that? 

The bit about joint accounts and the source. Are you making this point in in the context of the tax relief applied to the contribution, i.e. whatever the tax rates of each spouse, it will be the tax rate of the receiver that is added to the contributions, e.g. if £10,000 is paid in the lower of £2,000 (20%) or £4,000 (40%) will be added to this by the SIPP provider grossing it up to £12,000 or £14,000?

The individual's tax rate is irrelevant for RAS (relief at source) contributions.

Providing contributions are made within the relevant earnings and annual allowance limits then basic rate tax relief is always added.

This happens if the individual doesn't pay any tax or pays higher rate tax.

And it is 25% which is "added".

Net contribution of £10,000 has £2,500 added making a gross contribution of £12,500 (£12,500 x 20% = £2,500).

zagfles

kerrick said:

My SIPP gets director contributions every year from my own company, and will get close to the LTA in a few years time. I am most years a basic rate tax payer, sometimes into higher rate.

Spouse had no pension and is 16 years from state pension age from voluntary contributions as has no income but does things to help with my company from time to time.

What are the options for paying into a SIPP if one is set up? Can I pay into it? Can my company? How could we do this and how much could we pay in? Having left it late it would be good to maximize it now.

As spouse has "no income" (as so is presumably not an employee of the company) the max he/she/you can pay into their SIPP is £2880 which will be grossed up to £3600.

Of course what some people with their own company do is employ their spouse as a company employee. Then the company could make employer contributions, obviously no personal tax relief on company contributions, but they'd be deductible against company profits. But they'd need to actually do work for the company which reflects the value of their remuneration inc pension contributions, otherwise it'd probably be tax fraud - best speaking to your accountant about this.

In fact if the accountant knows spouse is "doing things to help company" why haven't they already recommended spouse is on the company payroll, if only just to use their tax allowance? Is the stuff they do genuinely business related work and not personal stuff eg making the tea, ironing shirts etc? Talk to your accountant anyway before you do anything.

zagfles

kerrick said:

I will ask my accountant about company contributions. Can contributions be made from multiple sources, so if the company pays in £20,000 can I also pay in an amount to add to that? 

The bit about joint accounts and the source. Are you making this point in in the context of the tax relief applied to the contribution, i.e. whatever the tax rates of each spouse, it will be the tax rate of the receiver that is added to the contributions, e.g. if £10,000 is paid in the lower of £2,000 (20%) or £4,000 (40%) will be added to this by the SIPP provider grossing it up to £12,000 or £14,000?

If it goes into your spouse's pension then it's their tax status that is relevant. They have no income, so the max will be £2880 net and the SIPP provider will gross up to £3600.

If they were an employee of the company and got paid a wage of say £10,000 then they could contribute £8000 to the SIPP as personal contributions and the SIPP provider would claim £2000 tax relief, so a gross contribution of £10,000. The company could also make contributions, obviously you need to make sure the SIPP provider knows they're company contributions and so doesn't claim tax relief, but you'll know that from your own SIPP.

kerrick

Dazed_and_C0nfused said:

kerrick said:

I will ask my accountant about company contributions. Can contributions be made from multiple sources, so if the company pays in £20,000 can I also pay in an amount to add to that? 

The bit about joint accounts and the source. Are you making this point in in the context of the tax relief applied to the contribution, i.e. whatever the tax rates of each spouse, it will be the tax rate of the receiver that is added to the contributions, e.g. if £10,000 is paid in the lower of £2,000 (20%) or £4,000 (40%) will be added to this by the SIPP provider grossing it up to £12,000 or £14,000?

The individual's tax rate is irrelevant for RAS (relief at source) contributions.

Providing contributions are made within the relevant earnings and annual allowance limits then basic rate tax relief is always added.

This happens if the individual doesn't pay any tax or pays higher rate tax.

And it is 25% which is "added".

Net contribution of £10,000 has £2,500 added making a gross contribution of £12,500 (£12,500 x 20% = £2,500).

just checking I understood this - if an earning 20% or 40% tax payer pays into the SIPP of a non-earning spouse, the spouse still gets basic rate 20% tax relief (even though they are non earning)? So an immediate 25% uplift in the value paid in? The only limit on how much can be paid in, is that it cannot exceed the amount of salary of the giver, so if a company director was making the payments they would need to draw a salary as dividend income isn't counted. 

zagfles

kerrick said:

Dazed_and_C0nfused said:

kerrick said:

I will ask my accountant about company contributions. Can contributions be made from multiple sources, so if the company pays in £20,000 can I also pay in an amount to add to that? 

The bit about joint accounts and the source. Are you making this point in in the context of the tax relief applied to the contribution, i.e. whatever the tax rates of each spouse, it will be the tax rate of the receiver that is added to the contributions, e.g. if £10,000 is paid in the lower of £2,000 (20%) or £4,000 (40%) will be added to this by the SIPP provider grossing it up to £12,000 or £14,000?

The individual's tax rate is irrelevant for RAS (relief at source) contributions.

Providing contributions are made within the relevant earnings and annual allowance limits then basic rate tax relief is always added.

This happens if the individual doesn't pay any tax or pays higher rate tax.

And it is 25% which is "added".

Net contribution of £10,000 has £2,500 added making a gross contribution of £12,500 (£12,500 x 20% = £2,500).

just checking I understood this - if an earning 20% or 40% tax payer pays into the SIPP of a non-earning spouse, the spouse still gets basic rate 20% tax relief (even though they are non earning)? So an immediate 25% uplift in the value paid in? The only limit on how much can be paid in, is that it cannot exceed the amount of salary of the giver, so if a company director was making the payments they would need to draw a salary as dividend income isn't counted. 

No you've totally misunderstood. Your salary etc is totally irrelavent for your spouse's contributions. It's their salary that matters. Your spouse has no income, so the max they can pay into a pension is £2880 net, as above. Period. It doesn't matter whether the money comes from you, or their own savings etc. Your earnings/salary etc are not relevant. Your company is not relevant either as your spouse doesn't appear to be an employee/director of it.

kerrick

zagfles said:

kerrick said:

Dazed_and_C0nfused said:

kerrick said:

I will ask my accountant about company contributions. Can contributions be made from multiple sources, so if the company pays in £20,000 can I also pay in an amount to add to that? 

The bit about joint accounts and the source. Are you making this point in in the context of the tax relief applied to the contribution, i.e. whatever the tax rates of each spouse, it will be the tax rate of the receiver that is added to the contributions, e.g. if £10,000 is paid in the lower of £2,000 (20%) or £4,000 (40%) will be added to this by the SIPP provider grossing it up to £12,000 or £14,000?

The individual's tax rate is irrelevant for RAS (relief at source) contributions.

Providing contributions are made within the relevant earnings and annual allowance limits then basic rate tax relief is always added.

This happens if the individual doesn't pay any tax or pays higher rate tax.

And it is 25% which is "added".

Net contribution of £10,000 has £2,500 added making a gross contribution of £12,500 (£12,500 x 20% = £2,500).

just checking I understood this - if an earning 20% or 40% tax payer pays into the SIPP of a non-earning spouse, the spouse still gets basic rate 20% tax relief (even though they are non earning)? So an immediate 25% uplift in the value paid in? The only limit on how much can be paid in, is that it cannot exceed the amount of salary of the giver, so if a company director was making the payments they would need to draw a salary as dividend income isn't counted. 

No you've totally misunderstood. Your salary etc is totally irrelavent for your spouse's contributions. It's their salary that matters. Your spouse has no income, so the max they can pay into a pension is £2880 net, as above. Period. It doesn't matter whether the money comes from you, or their own savings etc. Your earnings/salary etc are not relevant. Your company is not relevant either as your spouse doesn't appear to be an employee/director of it.

I see. So to build up a larger SIPP the receiving spouse should be employed by the company and earn a salary, e.g. £12,000 and the same amount can then be paid into their SIPP by the other spouse who is the company owner/director (although as the income at that level is not taxed it may be better for the receiving spouse making the payment themselves?) Then the SIPP contribution is grossed up by 25% uplift from £12,000 to £15,000. Can the director make the contribution even if they have no salaried income, just dividends (contributions into their own SIPP are made from the company)? 

dunstonh

I will ask my accountant about company contributions. Can contributions be made from multiple sources, so if the company pays in £20,000 can I also pay in an amount to add to that? 

You can but in the case of "own company", where you have sufficient funds outside of the company but not in the company, you would take less in dividends and make a company contribution and use the money externally instead of dividends.

The bit about joint accounts and the source. Are you making this point in in the context of the tax relief applied to the contribution, i.e. whatever the tax rates of each spouse, it will be the tax rate of the receiver that is added to the contributions, e.g. if £10,000 is paid in the lower of £2,000 (20%) or £4,000 (40%) will be added to this by the SIPP provider grossing it up to £12,000 or £14,000?

The issue is that third party payments into pensions do not obtain tax relief.  Spouses are a third party but most providers accept that money is held jointly and if it's coming from a joint account, then its not a third party payment.   So, if you are going to make personal contributions to your spouses pension, then as long as it comes from a joint account or their bank account, there is no problem.  Even if the original source of the wealth is from your earnings.

However, the best way, if your spouse in on the company, is employer contributions.   They beat personal contributions in the vast majority of cases.