MPAA total contribution

moedeeb

My wife works part time and her earned income is £6.5K.  She contributes about £1200 to pensions including employers contributions.  She is already subject to MPAA so can she contribute the full £6.5 income to her SIPP and then get 25% tax relief on top or does the total including tax relief have to stay below her earned income ?

I know that it is necessary to include tax relief for AA but is MPAA different?

THANKS

NoMore

Its neither the AA or MPAA which will be restricting her, its the tax relief limit.

You can't claim tax relief from more than your relevant earnings, so in your wife's case she can't get 25% on top of her Gross earnings only on 5200 net, which will get the tax relief taking it to 6500.

Now if that plus the employer contributions go above 10k you've broken the MPAA.

dunstonh

Pensions are always treated as gross.  i..e £10k gross for the MPAA

However, your wife will be restricted by her gross income of £6500

moedeeb

Thanks, I’m aware that she can’t contribute more than earned income. So we can pay in the full £6.5k get additional tax relief of £1625 (without actually paying any income tax in the first place) and then withdraw in the next tax year up to her 12.5k nil rate band. We are trying to be as tax efficient as possible before state pension kicks in a couple of years, at which point basic rate tax on her salary will be unavoidable.

moedeeb

Sorry I think I’m getting confused by all the gross / net stuff. Her actual salary is 6.500 and she pays no tax or Ni does that still mean her net earnings are £5200. It seems counterintuitive 

NoMore

moedeeb said:

Sorry I think I’m getting confused by all the gross / net stuff. Her actual salary is 6.500 and she pays no tax or Ni does that still mean her net earnings are £5200. It seems counterintuitive 

No her salary is her Gross earnings, so that's the most you can put into the pension to get tax relief, so to end up with 6500 in pension, via relief at source, you make a net contribution of 5200, which is grossed up to 6500 by the pension claiming tax relief. Doesn't matter you haven't paid tax due to the Personal Tax allowance its still taxable income so entitled to tax relief at 20%

moedeeb

Thanks all I will ensure no more than 5200 is added this year

jamesd

Yes, 5200 is the number. It's counter-intuitive but you get tax relief without having tax to pay. Same for the up to 2880/3600 for those earning less than 3600 gross.

You can continue at the 2880 net until your 75th birthday.