SIPP contributions/personal allowance

spg1

Hi

I think I know the answer to this but just wanted to double-check as have had different results from online calculators!

I’m self-employed and will earn c£25k this tax year. If I contribute £20k to my SIPP before the tax year end I’d get tax relief of £5k added shortly after.

But given I won’t pay tax on the first £12.5k of my earnings due to the personal allowance, presumably HMRC will claw back £2.5k of the tax relief through self-assessment when I file my return?

thanks in advance

Mutton_Geoff

You thought wrong, nothing will be clawed back as you get relief on 100% of your earnings irrespective of your tax code.

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

dunstonh

I’m self-employed and will earn c£25k this tax year. If I contribute £20k to my SIPP before the tax year end I’d get tax relief of £5k added shortly after.

Your pension contribution can be £25k.  You get basic rate relief of £5,000, meaning your payment method is £20,000.

But given I won’t pay tax on the first £12.5k of my earnings due to the personal allowance, presumably HMRC will claw back £2.5k of the tax relief through self-assessment when I file my return?

No.  You get relief at source on the whole amount with no claw back.

Albermarle

What you pay in tax, and what tax relief you can get on pension contributions are unrelated.

For example someone earning £10K pa as their only income and with standard personal allowance of £12570 , will pay no tax . However they can still add £8K to a pension and get £2K tax relief added.
Alternatively if that same person also had taxable  income from other sources, which added up to say £20K and they were paying some tax, the max they can add to a pension is still £8K + £2K tax relief.

Uscot

Albermarle said:

What you pay in tax, and what tax relief you can get on pension contributions are unrelated.

For example someone earning £10K pa as their only income and with standard personal allowance of £12570 , will pay no tax . However they can still add £8K to a pension and get £2K tax relief added.
Alternatively if that same person also had taxable  income from other sources, which added up to say £20K and they were paying some tax, the max they can add to a pension is still £8K + £2K tax relief.

Hi, I am trying to get my head around the tax and pesnion rules - in the above eg where the individual had a total of £20k of taxable income (eg £10k from work, £10k rental income), why is £8k + £2k the max, why couldn't they add £16k + £4k tax relief to their pension? Does it depend on the source of the taxable income?

Dazed_and_C0nfused

Yes, rental income isn't counted for pension contribution limits.