Relevant Earnings Limit for Pension Contributions if Making Charitable Donations with Gift Aid

MPLMPL

Retirement is imminent. Before the end of this tax year I was planning to have made gross contributions into my SIPP up to my relevant earnings limit for the year.
I thought I had everything covered in my understanding for the relevant earnings limit, but Gift Aid has just entered my thoughts. I assume that I need to deduct the gross (Gift Aid added) contributions I make to a charity from my relevant earnings for the year to work out how much I add to my SIPP to stay within the relevant earnings limit. Am I correct?
e.g. if on retirement I have relevant earnings from my employment of £10,000 and in the current tax year I make a £100 a month charity donation that claims gifts aid, I will have donated £1,200 to this charity for the tax year, which with the £300 Gift Aid Added totals £1,500 gross. Is the maximum gross contribution that I can make to my SIPP (to attract tax relief) actually my relevant earnings of  £10,000 - charitiable donation inc Gift Aid £1,500 = £8,500?

To try to pre-emt a question or two. My occupational pension contributions for this tax year are/were all made via salary sacrifice (in fact sacrificing down to minimum wage), so these numbers are rounded but not far off my actual numbers, i.e. relevant earnings of just over 5 months minimum wage. Hybrid DB/DC (USS). PIA for DB, plus associated DC, plus SIPP contributions won't exceed £60,000 annual allowance.

Thanks

Dazed_and_C0nfused

MPLMPL said:

Retirement is imminent. Before the end of this tax year I was planning to have made gross contributions into my SIPP up to my relevant earnings limit for the year.
I thought I had everything covered in my understanding for the relevant earnings limit, but Gift Aid has just entered my thoughts. I assume that I need to deduct the gross (Gift Aid added) contributions I make to a charity from my relevant earnings for the year to work out how much I add to my SIPP to stay within the relevant earnings limit. Am I correct?
e.g. if on retirement I have relevant earnings from my employment of £10,000 and in the current tax year I make a £100 a month charity donation that claims gifts aid, I will have donated £1,200 to this charity for the tax year, which with the £300 Gift Aid Added totals £1,500 gross. Is the maximum gross contribution that I can make to my SIPP (to attract tax relief) actually my relevant earnings of  £10,000 - charitiable donation inc Gift Aid £1,500 = £8,500?

To try to pre-emt a question or two. My occupational pension contributions for this tax year are/were all made via salary sacrifice (in fact sacrificing down to minimum wage), so these numbers are rounded but not far off my actual numbers, i.e. relevant earnings of just over 5 months minimum wage. Hybrid DB/DC (USS). PIA for DB, plus associated DC, plus SIPP contributions won't exceed £60,000 annual allowance.

Thanks

Why do you think Gift Aid contributions are a factor for pension relevant earnings purposes?

If your only taxable income was ~£10k then HMRC would ask you to pay the £300 basic rate relief that the charity claimed back but that wouldn't change your relevant earnings.

MPLMPL

Dazed_and_C0nfused said:

Why do you think Gift Aid contributions are a factor for pension relevant earnings purposes?

If your only taxable income was ~£10k then HMRC would ask you to pay the £300 basic rate relief that the charity claimed back but that wouldn't change your relevant earnings.

Thanks for the prompt reply. I think the penny dropped almost as soon as I'd hit send. In my case I will have taxable income from pension payments for the rest of the tax year that will cover the £300 Gift Aid relief. I'd completely missed that the scenario I outlined was below the personal allowance.

The reason that I thought that Gift Aid would be a factor for pension relevant earnings, would be to avoid having to pay HMRC back the Gift Aid (completely missing the point that my example was below the personal allowance and that I would also be paying enough tax from pension payments to cover the Gift Aid). Whist I now see they are separate things and you don't deduct Gift Aid from your relevant earnings when working out permissable pension contributions, if you contribute your relevant earnings to a SIPP (and have no other taxable earnings such as pension payments to cover the Gift Aid), then you would need to repay the Gift Aid to HRMC.
Hypothetical now, but If I used £20,000 relevant earnings in my example, and made £20,000 gross SIPP contribution, and had no other taxable income, I would owe HMRC the Gift Aid. If I made a £18,500 SIPP contribution in this scenario, then I wouldn't owe HRMC the Gift Aid?

Dazed_and_C0nfused

MPLMPL said:

Dazed_and_C0nfused said:

Why do you think Gift Aid contributions are a factor for pension relevant earnings purposes?

If your only taxable income was ~£10k then HMRC would ask you to pay the £300 basic rate relief that the charity claimed back but that wouldn't change your relevant earnings.

Thanks for the prompt reply. I think the penny dropped almost as soon as I'd hit send. In my case I will have taxable income from pension payments for the rest of the tax year that will cover the £300 Gift Aid relief. I'd completely missed that the scenario I outlined was below the personal allowance.

The reason that I thought that Gift Aid would be a factor for pension relevant earnings, would be to avoid having to pay HMRC back the Gift Aid (completely missing the point that my example was below the personal allowance and that I would also be paying enough tax from pension payments to cover the Gift Aid). Whist I now see they are separate things and you don't deduct Gift Aid from your relevant earnings when working out permissable pension contributions, if you contribute your relevant earnings to a SIPP (and have no other taxable earnings such as pension payments to cover the Gift Aid), then you would need to repay the Gift Aid to HRMC.
Hypothetical now, but If I used £20,000 relevant earnings in my example, and made £20,000 gross SIPP contribution, and had no other taxable income, I would owe HMRC the Gift Aid. If I made a £18,500 SIPP contribution in this scenario, then I wouldn't owe HRMC the Gift Aid?

Honestly don't follow your figures.

Unlike Gift Aid there is no link between the basic rate tax relief on relief at source (RAS) pension contributions and the tax you pay.

So if you earned £20k and paid £16k (net) into a RAS pension like a SIPP then you would receive basic rate relief of £4k, making a pension fund of £20k. 

The fact that you might only have paid income tax of ~£1.5k is irrelevant for the pension but would mean you had suffered sufficient tax to cover the tax claimed by the charity on Gift Aid donations. 

MPLMPL

Not sure I follow my figures either... Got it, they are not linked.
Thanks

Marcon

If you want to keep it really simple, look at the declaration you make when ticking the 'Gift Aid' box, which will be along the lines of:

I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax in the current tax year than the amount of Gift Aid claimed on all my donations it is my responsibility to pay any difference.