Annual Allowance Pension Question

Malibusmash

I am currently employed full-time and would like to contribute my FULL annual net allowance amount to my SIPP for the tax year 2023-2024 in mid-April 2023. 

However I am to become unemployed in June and will be a non-earner for tax purposes for the foreseeable future (certainly for the 2023-2024 tax year). 

My question is, will my impending unemployment status from June 2023 onwards affect my ability to receive the full tax relief for 2023-2024 on my net amount contibuted in April?

artyboy

Yes, you can only contribute up to the extent of your earnings for that tax year. So if (for example) you only earn 10k up to June before leaving work, and nothing more after that, then 10k gross (8k net) is all you can contribute to a pension.

Do you have the ability (and sufficient earnings) to pay more in for this tax year?

Linton

In addition to the Annual Allowance, your pension contributions in a tax year on which you can receive tax relief are limited to your earned income. Unlike AA there is no carry over from previous years.

If you have no earned income the maximum you can contribute to a pension and receive a tax refund is £3600 gross, £2880 net

Albermarle

On timing you  can contribute anytime during the tax year. The fact that you are employed for 3 months and unemployed for 9 months does not matter. As above what matters is your total earned income in the tax year.

Malibusmash

Thank you.  So if I were to contribute in April more than I can receive relief on, then what will happen to the irrelevant contributed amount?

Linton

Malibusmash said:

Thank you.  So if I were to contribute in April more than I can receive relief on, then what will happen to the irrelevant contributed amount?

It would appear that if your total pension contributions are in excess of your "relevent earnings" HMRC can instruct your pension provider to repay the excess back to you.  See https://www.investcentre.co.uk/sites/default/files/AJBIC_Contributions_Refunds_Guide.pdf