What counts as taxable income for pension contributions?

malc_b

Hi,

For tax relief, you need to be under 75 and you can pay into a pension (i.e. SIPP) 2880 pa (3600 with tax relief added) or up to what you earn.  But is that total earnings or just the part you pay tax on?  What about when you have retired and get state pension, maybe some serps equivalent too, maybe a DB pension, maybe an annuity.  Since allowance is roughly the state pension then all the rest are taxable so can you pay into a SIPP up to serps equivalent + DB pension + annuity?  Assuming that is that these after tax total more than 2880.  Or does these taxable monies not count as income?

Thanks

zagfles

Generally earned income, ie employment income, self employed profits etc, not unearned like pension, dividends etc. See PTM044100 - Contributions: tax relief for members: conditions - HMRC internal manual - GOV.UK (www.gov.uk) for a full list

Albermarle

But is that total earnings or just the part you pay tax on?  

How much tax you pay, and how much tax relief you can get are two different things. The latter ( as in the post above) is linked mainly to your employment income, not how much tax you actually pay.

You can for example earn £10K pa , pay no tax at all, but get tax relief based on your salary.

Grumpy_chap

malc_b said:

Hi,

For tax relief, you need to be under 75 and you can pay into a pension (i.e. SIPP) 2880 pa (3600 with tax relief added) or up to what you earn.  But is that total earnings or just the part you pay tax on?  What about when you have retired and get state pension, maybe some serps equivalent too, maybe a DB pension, maybe an annuity.  Since allowance is roughly the state pension then all the rest are taxable so can you pay into a SIPP up to serps equivalent + DB pension + annuity?  Assuming that is that these after tax total more than 2880.  Or does these taxable monies not count as income?

Thanks

All those things you mention are income but not earnings.

Earnings are employment income for most people.

Unearned income such as pensions, dividend, interest, BTL income do not count as earnings.

legalfreak

Grumpy_chap said:

malc_b said:

Hi,

For tax relief, you need to be under 75 and you can pay into a pension (i.e. SIPP) 2880 pa (3600 with tax relief added) or up to what you earn.  But is that total earnings or just the part you pay tax on?  What about when you have retired and get state pension, maybe some serps equivalent too, maybe a DB pension, maybe an annuity.  Since allowance is roughly the state pension then all the rest are taxable so can you pay into a SIPP up to serps equivalent + DB pension + annuity?  Assuming that is that these after tax total more than 2880.  Or does these taxable monies not count as income?

Thanks

All those things you mention are income but not earnings.

Earnings are employment income for most people.

Unearned income such as pensions, dividend, interest, BTL income do not count as earnings.

To be pedantic, the phrase HMRC use is 'relevant earnings'. So, HMRC allude to the fact that income from pensions, interest etc. can indeed be 'earnings' just not 'relevant' ones for the OP's question. You are right of course.

One problem is that some websites confuse things: Some say you have to be a non-taxpayer to benefit from the tax free contribution of £2,880 and others say you must have 'low earnings'.

malc_b

Thanks for all the replies, particularly the link to the GOV manual page.  That page was very helpful in defining the amount you can get tax relief on as £3600 or "the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year".  That's clearly than just calling it taxable income as various guides do as this of course includes everything that is taxable.  IMO "relevant UK earnings" is missing from these guides.

On a related matter, can you pay into a SIPP more than the tax relief limit?

prowla

Grumpy_chap said:

malc_b said:

Hi,

For tax relief, you need to be under 75 and you can pay into a pension (i.e. SIPP) 2880 pa (3600 with tax relief added) or up to what you earn.  But is that total earnings or just the part you pay tax on?  What about when you have retired and get state pension, maybe some serps equivalent too, maybe a DB pension, maybe an annuity.  Since allowance is roughly the state pension then all the rest are taxable so can you pay into a SIPP up to serps equivalent + DB pension + annuity?  Assuming that is that these after tax total more than 2880.  Or does these taxable monies not count as income?

Thanks

All those things you mention are income but not earnings.

Earnings are employment income for most people.

Unearned income such as pensions, dividend, interest, BTL income do not count as earnings.

Pension income is taxable income, which I think means it's "earnings".

zagfles

prowla said:

Grumpy_chap said:

malc_b said:

Hi,

For tax relief, you need to be under 75 and you can pay into a pension (i.e. SIPP) 2880 pa (3600 with tax relief added) or up to what you earn.  But is that total earnings or just the part you pay tax on?  What about when you have retired and get state pension, maybe some serps equivalent too, maybe a DB pension, maybe an annuity.  Since allowance is roughly the state pension then all the rest are taxable so can you pay into a SIPP up to serps equivalent + DB pension + annuity?  Assuming that is that these after tax total more than 2880.  Or does these taxable monies not count as income?

Thanks

All those things you mention are income but not earnings.

Earnings are employment income for most people.

Unearned income such as pensions, dividend, interest, BTL income do not count as earnings.

Pension income is taxable income, which I think means it's "earnings".

But not "relevant earnings", as above. So don't count for the tax relief limit. 

zagfles

malc_b said:

Thanks for all the replies, particularly the link to the GOV manual page.  That page was very helpful in defining the amount you can get tax relief on as £3600 or "the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year".  That's clearly than just calling it taxable income as various guides do as this of course includes everything that is taxable.  IMO "relevant UK earnings" is missing from these guides.

On a related matter, can you pay into a SIPP more than the tax relief limit?

Theoretically, yes, as it says on the HMRC page linked above. But it's generally a bad idea as you get no tax relief going in and it'll mostly be taxable income when you take it out, plus most providers won't accept contribution on that basis (you would have to tell them). It's generally against their T&Cs. 

Albermarle

malc_b said:

Thanks for all the replies, particularly the link to the GOV manual page.  That page was very helpful in defining the amount you can get tax relief on as £3600 or "the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year".  That's clearly than just calling it taxable income as various guides do as this of course includes everything that is taxable.  IMO "relevant UK earnings" is missing from these guides.

On a related matter, can you pay into a SIPP more than the tax relief limit?

Worth noting that the pension provider will add basic rate tax relief to all your contributions, regardless of whether you have enough relevant earnings. However at some point HMRC will probably spot what was going on and you ( in fact would be the provider ) would have to unwind the transactions.

If you have more money to invest than you can gain tax relief on, you would be better putting it in a Stocks and Shares ISA/general investment account.

af1963

It's in the link, but worth noting that work-related taxable benefits are included in the total 'relevant earnings'.