Capital Investment Bond - chargeable event taxation

Dazed_and_C0nfused

jimmo said:

Albermarle said:

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

I never understand this. In my day you had to actually pay the tax for the SIPP provider to claim the tax relief.

RAS is exceedingly generous in some situations.

A lot of people of getting a free £720 each year with no prospect of ever having to pay tax now or in the future!

jimmo

Dazed_and_C0nfused said:

jimmo said:

Albermarle said:

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

I never understand this. In my day you had to actually pay the tax for the SIPP provider to claim the tax relief.

RAS is exceedingly generous in some situations.

A lot of people of getting a free £720 each year with no prospect of ever having to pay tax now or in the future!

Actually I did know about the contribution of £2880 being made up to £3600 but what about the OP's wife who appears to be getting relief of £1400 p a ?

[Deleted User]

jimmo said:

Albermarle said:

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

I never understand this. In my day you had to actually pay the tax for the SIPP provider to claim the tax relief.

Likewise. Under the old total income method the op’s wife would have a demand in the pipeline of £1400. As it would be if a £5600 gift aid contribution was made. 

[Deleted User]

To further confuse matters - from HMRC (doesn’t seem correct to me)

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source

Dazed_and_C0nfused

[Deleted User] said:

To further confuse matters - from HMRC (doesn’t seem correct to me)

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source

It's garbage.

The ops wife could get £1,400 free money (assuming she can afford to tie up all her profits in a pension contributions).

Providing she limits the gross contribution to her profits (assuming no separate earnings) then she will get the tax relief and not be required to make any payment to HMRC.  Unlike what would happen with Gift Aid.

Someone making profit or exactly £12,570 could get a free £2,514 in RAS tax relief without paying a penny in tax.

Jeremy535897

jimmo said:

Albermarle said:

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

I never understand this. In my day you had to actually pay the tax for the SIPP provider to claim the tax relief.

In the days of retirement annuities, you paid in £10,000, and got £2,000 tax relief if you were a basic rate taxpayer, so you were out of pocket by £8,000, and the pension fund ended up with £10,000. HMRC effectively paid the £2,000 by reducing your tax bill. Now you start by paying £8,000 to the pension scheme, and HMRC pays in £2,000. So you are still down £8,000, HMRC pays £2,000, and the pension scheme has £10,000.

[Deleted User]

Jeremy535897 said:

jimmo said:

Albermarle said:

She is self employed with a profit usually around £7k which she puts almost all into a SIPP.

Off topic but just to be clear. If she has a profit of £7K , the maximum she can add to a SIPP is £5,600, and the SIPP provider will add £1,400 in tax relief ( to make £7K gross).

I never understand this. In my day you had to actually pay the tax for the SIPP provider to claim the tax relief.

In the days of retirement annuities, you paid in £10,000, and got £2,000 tax relief if you were a basic rate taxpayer, so you were out of pocket by £8,000, and the pension fund ended up with £10,000. HMRC effectively paid the £2,000 by reducing your tax bill. Now you start by paying £8,000 to the pension scheme, and HMRC pays in £2,000. So you are still down £8,000, HMRC pays £2,000, and the pension scheme has £10,000.

Yes - but, under RAR, no tax paid = no relief. Now you can earn 12570, pay pension 10056 and get it made up to 12570. Tax relief 2514 with no tax paid. 

Edit: you have just made same point.

Dazed_and_C0nfused

But if you were a part time Tax Inspector earning £12,570 and had no other income and contributed under the net pay method you wouldn't receive any relief.

Although plans are afoot to change that.

https://www.gov.uk/government/publications/low-earners-anomaly-pensions-relief-relating-to-net-pay-arrangements