Passive income

Stod

I would like to set up a pension. I have ben receiving passive income (from rent) for 3 years. How much can I contribute towards it and get tax relief? Current year and 3 previous years, I assume.
- this year.
- 2 more years, I was renting.
- 1 year I didn't have income. (£2,880?)

Dazed_and_C0nfused

If you don't have any qualify earnings for pension purposes (rental income doesn't count) then you can contribute £2,880 (net) for the current tax year.

You can never make pension contributions for any year other than the current one.

Stod

You will not be taxed on pension savings over your annual allowance if you have enough unused annual allowance from previous years to carry forward. You can carry forward unused allowance from the 3 previous tax years.
That is from HMRC website.

michaels

Stod said:

You will not be taxed on pension savings over your annual allowance if you have enough unused annual allowance from previous years to carry forward. You can carry forward unused allowance from the 3 previous tax years.
That is from HMRC website.

But the carry forward can only be used against this years income - which is nil for pension purposes hence the 2880/3600 applies

Dazed_and_C0nfused

Stod said:

You will not be taxed on pension savings over your annual allowance if you have enough unused annual allowance from previous years to carry forward. You can carry forward unused allowance from the 3 previous tax years.
That is from HMRC website.

But you didn't mention wanting to carry forward unused annual allowance.

And that doesn't change anything, you still cannot make pension contributions in any tax year other than the current one.

Carrying forward unused annual allowance would only help those who have used this years annual allowance.  Which is £60k.  Way above the amount you are eligible to contribute on the current tax year (£2,880 net, £3,600 gross).

Stod

£60K allowance is for employed. £3,600 for people who don't pay tax. I am neither. 
In fact I was told that I can contribute £8000(£10,000) this year, just can't find their contact now.

Dazed_and_C0nfused

Stod said:

£60K allowance is for employed. £3,600 for people who don't pay tax. I am neither. 
In fact I was told that I can contribute £8000(£10,000) this year, just can't find their contact now.

There is no such limit for those that don't pay tax.

Someone who is employed with £12,000 in taxable earnings could contribute £12,000 (gross).

£3,600 is the limit for those with no qualifying income for pension purposes or with qualifying income less than £3,600.

The £10,000 limit will be MPAA and still doesn't change the fact that you will be constrained by not having any qualifying income.

Secret2ndAccount

Well, believe what you want, but here are the facts:
There are two limits on your pension contributions:
1. The Annual Allowance. This is an upper bound on all contributions (you + an employer/company + the taxman) into your pension in one tax year. The base number is 60k per year, but it can be higher or lower depending on your personal circumstances.
2. The tax relief limit.  You cannot receive tax relief on more than your relevant earnings. Rent doesn't count. If you have no, or low income, you are allowed to put in 2880 which gets 720 tax relief added, making a total of 3600.
It is legally permitted to pay in more than this, but you won't get any tax relief. So in 99% of cases it would be a bad idea. Many pension providers are not set up to deal with such excess contributions.

If your rental income is to a limited company, and the company is paying you a salary, or making contributions for you, then you might be able to pay in more than 2880. If you are acting as a sole trader, and receiving the rent personally, and you have no earned income, then your ceiling is 2880.

Legally you can put 10,000 or 10 million into a pension, but there is no benefit if you don't get tax relief, and hefty penalties if you exceed the annual allowance

Stod

Thank you.

michaels

Secret2ndAccount said:

Well, believe what you want, but here are the facts:
There are two limits on your pension contributions:
1. The Annual Allowance. This is an upper bound on all contributions (you + an employer/company + the taxman) into your pension in one tax year. The base number is 60k per year, but it can be higher or lower depending on your personal circumstances.
2. The tax relief limit.  You cannot receive tax relief on more than your relevant earnings. Rent doesn't count. If you have no, or low income, you are allowed to put in 2880 which gets 720 tax relief added, making a total of 3600.
It is legally permitted to pay in more than this, but you won't get any tax relief. So in 99% of cases it would be a bad idea. Many pension providers are not set up to deal with such excess contributions.

If your rental income is to a limited company, and the company is paying you a salary, or making contributions for you, then you might be able to pay in more than 2880. If you are acting as a sole trader, and receiving the rent personally, and you have no earned income, then your ceiling is 2880.

Legally you can put 10,000 or 10 million into a pension, but there is no benefit if you don't get tax relief, and hefty penalties if you exceed the annual allowance

It could make sense to make pension contributions that are not eligible for tax relief if:
a) you expected to withdraw them without paying tax (ie your total income during drawdown would be less than the personal tax allowance) and
b) You had filled your isa allowance and/or
3) The reduction in income assessed for certain benefits gave you an entitlement that you would not otherwise have

Thumbs_Up

Secret2ndAccount said:

 you are allowed to put in 2880 which gets 720 tax relief added, making a total of 3600.
It is legally permitted to pay in more than this, but you won't get any tax relief. So in 99% of cases it would be a bad idea. Many pension providers are not set up to deal with such excess contributions.

This bit interest me, i have no salary wage income and contribute £2880 to my Vanguard SIPP. I did message Vanguard about me possibly adding more money to the pot, i can't remember the answer, but it was vague. My feeling is adding more lump sum money ( without the tax benefit ) is still useful because hopefully the fund (and the cost) will grow after a 10 year period before i draw on it.