Self employed part time maximum payment into SIPP

bazray

My partner is self employed as a hairdresser and usually works 2-3 days a week. Her earnings are variable between £9k and £15k a year. If we setup a SIPP can she pay in all that she earns in any tax year and get 20% tax relief on it even if that year she didn't earn over the tax threshold of £12,570?  So for example if she earned £9,000 this tax year she can pay £7,200 in and get it topped up to £9k or can you only pay in more than the £2,880 once you earn over the tax threshold? 

Many thanks in advance

BoGoF

She can pay in up to level of her taxable profit, including the tax relief element.

af1963

Sounds too good to be true, but actually isn't!  You can get the tax relief even if you didn't earn enough to actually pay any tax.( She would end up with £9K in the pension and £1800 in hand. ). She might end up paying some tax on the money in the pension at a later date, depending on her other pensions/income when taking it.

bazray

BoGoF said:

She can pay in up to level of her taxable profit, including the tax relief element.

Thanks 

xylophone

 A person aged under age 75 and with no relevant earnings at all may still make a contribution of up  to £2880 to a personal pension/SIPP/stakeholder and receive tax relief of up to £720.

Assuming that your spouse is under age 75, she can contribute up to her net  taxable profit and receive tax relief, even if her income is not high enough for her to pay income tax because it is still "chargeable to tax" even if at nil rate because of the personal allowance.

If the gross profit were £10,000 per annum, she could contribute £8000 to the pension and the provider would claim relief of £2000 and add it to her pension pot.

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

bazray

af1963 said:

Sounds too good to be true, but actually isn't!  You can get the tax relief even if you didn't earn enough to actually pay any tax.( She would end up with £9K in the pension and £1800 in hand. ). She might end up paying some tax on the money in the pension at a later date, depending on her other pensions/income when taking it.

Thanks, yes it does sound too good to be true haha. The plan would be for her to retire early and draw up to the tax threshold for those few years and run the pot dry before she  draws a state pension 

bazray

xylophone said:

 A person aged under age 75 and with no relevant earnings at all may still make a contribution of up  to £2880 to a personal pension/SIPP/stakeholder and receive tax relief of up to £720.

Assuming that your spouse is under age 75, she can contribute up to her net  taxable profit and receive tax relief, even if her income is not high enough for her to pay income tax because it is still "chargeable to tax" even if at nil rate because of the personal allowance.

If the gross profit were £10,000 per annum, she could contribute £8000 to the pension and the provider would claim relief of £2000 and add it to her pension pot.

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

Thanks, yes she's under 75. I just wanted to double check as sometimes the wording is a bit ambiguous. Thanks for the link to the manual too.

Secret2ndAccount

With a variable level of profits be careful to match the contributions with the correct year. You have to pay into the pension by Apr 5th, but you have until the following January to file the tax form. So you might not have calculated your profits yet, but the deadline for pension contributions doesn't wait. You are left having to guestimate what the maximum contributions should be. If you find you have paid in too much you can always ask for it back later.

bazray

Secret2ndAccount said:

With a variable level of profits be careful to match the contributions with the correct year. You have to pay into the pension by Apr 5th, but you have until the following January to file the tax form. So you might not have calculated your profits yet, but the deadline for pension contributions doesn't wait. You are left having to guestimate what the maximum contributions should be. If you find you have paid in too much you can always ask for it back later.

Thanks, yes the plan would probably be to put in a conservative estimate then top it up when that years returns have been filed. In hindsight having a Sipp already open and putting in a small amount each year would have been better as you can backdate up to 3 years it seems. Not to worry, live and learn 

Dazed_and_C0nfused

bazray said:

Secret2ndAccount said:

With a variable level of profits be careful to match the contributions with the correct year. You have to pay into the pension by Apr 5th, but you have until the following January to file the tax form. So you might not have calculated your profits yet, but the deadline for pension contributions doesn't wait. You are left having to guestimate what the maximum contributions should be. If you find you have paid in too much you can always ask for it back later.

Thanks, yes the plan would probably be to put in a conservative estimate then top it up when that years returns have been filed. In hindsight having a Sipp already open and putting in a small amount each year would have been better as you can backdate up to 3 years it seems. Not to worry, live and learn 

I think you've misunderstood the rules somewhere along the line.

You can never backdate pension contributions, you only ever make contributions for the current tax year.

You can sometimes make use of unused annual allowance from the previous 3 tax years (to make additional contributions in the current tax year) but that is only relevant once you have used the current tax years annual allowance, currently £60k, so this won't be of any use to your partner.

She needs to get a handle on what her taxable profit will be by March and make contributions on that basis.

If her accounting year ends earlier in the year that will make life easier but if she had a 31 March or 5 April (accounts) year end then there will be some guesswork and she may need to err on the cautious side.

bazray

Dazed_and_C0nfused said:

bazray said:

Secret2ndAccount said:

With a variable level of profits be careful to match the contributions with the correct year. You have to pay into the pension by Apr 5th, but you have until the following January to file the tax form. So you might not have calculated your profits yet, but the deadline for pension contributions doesn't wait. You are left having to guestimate what the maximum contributions should be. If you find you have paid in too much you can always ask for it back later.

Thanks, yes the plan would probably be to put in a conservative estimate then top it up when that years returns have been filed. In hindsight having a Sipp already open and putting in a small amount each year would have been better as you can backdate up to 3 years it seems. Not to worry, live and learn 

I think you've misunderstood the rules somewhere along the line.

You can never backdate pension contributions, you only ever make contributions for the current tax year.

You can sometimes make use of unused annual allowance from the previous 3 tax years (to make additional contributions in the current tax year) but that is only relevant once you have used the current tax years annual allowance, currently £60k, so this won't be of any use to your partner.

She needs to get a handle on what her taxable profit will be by March and make contributions on that basis.

If her accounting year ends earlier in the year that will make life easier but if she had a 31 March or 5 April (accounts) year end then there will be some guesswork and she may need to err on the cautious side.

Yes, you can only go back 3 years and top up any unused allowance that's what I meant, but you must have the pension open in the first place that's why I said in hindsight as she doesn't have a pension at the moment unfortunately. Yes will will be cautious, thanks for the advice