Who can pay into a SIPP?

lisyloo

MallyGirl said:

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

Unless it's via salary sacrifice.

zagfles

lisyloo said:

MallyGirl said:

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

Unless it's via salary sacrifice.

The PP was correct. SIPPs do not gross up to 40%. Sal sac contributions are employer contributions. They are never grossed up at all in a SIPP. The "tax relief" is in payroll, not the SIPP.

MallyGirl

kerrick said:

zagfles said:

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)? 

If they were to earn £12k then £12k gross is the max that could be paid into the SIPP. That would be £9600 from her and £2400 uplift

zagfles

kerrick said:

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)? 

You're just complicating matters by thinking of you paying into your spouse's SIPP. Forget that. Your spouse pays into their own SIPP. That could come from their salary, or a gift from you etc. Their limits/reliefs etc depend on their circumstances, not yours. Also read the above. A £12k salary means spouse could only pay £12k gross into a SIPP, ie inc the tax relief, that is £9600 net.

Employer conts can be on top, obviously SIPP doesn't add tax relief for employer conts. Dividends do not count as earned income so they don't increase the limit on personal contributions.

You need to talk to your accountant about your spouse's employment status and how much remuneration they could get. At the moment you say he/she has no income and therefore presumably not a company employee/director. As such, the max is £2880 net. We could get into all sorts of what if games, but the answer to your question as the moment is £2880 net max. If he/she is working for the company why is he/she not already on the payroll?

dunstonh

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

Or the spouse becomes a shareholding director on the company.  In which case they can get £40,000 paid in without the need for a salary.   Although paying them a salary to the primary threshold would make sense.

If you put them on the business as a company secretary, then you probably wouldn't get away with £40,000 and would need to use a lower figure.  HMRC leave it to their own discretion as to what would be allowable on a case by case basis.  Hence why shareholding director is better as they never look at pension contributions on those.

Dazed_and_C0nfused

lisyloo said:

MallyGirl said:

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

Unless it's via salary sacrifice.

Salary sacrifice contributions don't get any pension tax relief at all as they are employer contributions.

The tax (and NI) savings is from not having the income in the first place.

german_keeper

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.

Not sure if I am misunderstanding you dunston but I have made direct payments into my wife's pension, from my account not a joint one, and they have had the tax relief added. I have just checked and the tax relief is there and they are listed as "from someone else".

dunstonh

german_keeper said:

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.

Not sure if I am misunderstanding you dunston but I have made direct payments into my wife's pension, from my account not a joint one, and they have had the tax relief added. I have just checked and the tax relief is there and they are listed as "from someone else".

As I mentioned earlier, it is possible but usually requires a bit more admin.   Sometimes as little as an explanation. Sometimes a form.

zagfles

german_keeper said:

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.

Not sure if I am misunderstanding you dunston but I have made direct payments into my wife's pension, from my account not a joint one, and they have had the tax relief added. I have just checked and the tax relief is there and they are listed as "from someone else".

Dunstonh is wrong, third parties can make contributions on behalf of someone else and they are relievable, see

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#relievable

"A relievable pension contribution is a contribution paid to a registered pension scheme by or on behalf of a member of that scheme. This means that the contribution can be paid by the individual member or by a third party on behalf of the individual member..." (it them lists some exceptions eg over 75, employer etc).

But it can avoid problems particularly money laundering checks etc if you avoid paying directly into someone else's pension, just transfer the money to them and they can pay in themselves.

kerrick

I can see that the best option for maximizing the contributions is to become a director shareholder and receive company pension contributions. Would carry forward be permitted (£40,000 unused annual allowances from the three previous tax years, starting with the earliest)? 

The rules on carry forward say you must have "had a pension" in each of the years you want to carry forward from. Does having opened a SIPP 3 years ago, but having never made any contributions into it, still meet that criteria?

If you opened the SIPP and made the maximum non-earners contribution £2,880 (grossed up to £3600) in some years, for those years is the available carry forward for the directors pension contribution £36,400 (£40,000 - £3600)?

Can you take up carry forward for the previous 3 years unused allowances even if you were not a director/shareholder during the those earlier years?

The £40,000 p.a. limit, is that for the period covering the UK tax year to April, or the company's accounting tax period?