Pension tax relief with no relevant income

zagfles

Linton said:

FIREDreamer said:

Linton said:

chucknorris said:

Dazed_and_C0nfused said:

chucknorris said:

Dazed_and_C0nfused said:

chucknorris said:

Dazed_and_C0nfused said:

chucknorris said:

I think that I might have invested too much in my SIPP this tax tear (but I'm not sure), since I retired (just before the end of the last tax year) I have no relevant income. I invested £2,880 into my Sipp shortly after the start of this tax year, but I am a 40% tax payer, so should have I only invested £2,160?

With a relief at source (RAS) contribution you only ever receive basic rate relief from the scheme provider, so you pay £2,880 to end up with a gross contribution of £3,600.

If you are entitled to some higher rate relief then you need to contact HMRC to claim this.

You do not get a fixed extra 20%, the gross contribution increases your basic rate band by £3,600 and your liability is calculated using the increased basic rate band. This might give you a personal tax saving of £720. But it could be more or less depending on your overall tax situation.

Thanks for your reply.

I have to fill in a tax return every year to account for my dividend, corporate bond and rental income anyway, so liaising with HMRC is no bother. So are you saying that I have NOT disadvantaged myself by investing a net £2,880 into my Sipp? It's my first year without salary and so no relevant income, so I wasn't sure if I should have only invested £2,160 (£3,000 x 0.6, rather than the £3,600 x 0.8 that I did invest).

If you have no earnings and are under 75 then you can still contribute £3,600 gross each tax year.

Which is £2,880 from you and £720 in basic rate tax relief.

Any personal tax saving will be resolved via your Self Assessment return.

https://www.ajbell.co.uk/pensions/sipp-allowances

Thanks, but will I be eligible to receive the further 20% tax relief (up from the 20% already received to 40%). My uncertainty is whether everyone gets full tax relief in this situation (i.e. with no relevant income) or whether it is limited to only the basic 20% tax relief? Maybe this situation isn't any different and there is no reason why 40% (and 45%) tax payers can't get the full relief?

The gross contribution will increase your basic rate band by £3,600.

If you aren't a Scottish resident this means the basic rate band of £37,700 becomes £41,300.

How this personally benefits you is entirely dependent on a few things, your total taxable income and source of that income being key. 

You may also become eligible for Marriage Allowance which in itself would likely add £252 to any other personal tax saving.

And you may also benefit from a £1,000 savings nil rate band, instead of £500.

Thanks, but my income is way above the threshold of the higher rate band, its just under £100k, and next year I will have to refurbish an investment rental property if I want to keep my full personal allowance and avoid the notional 60% tax band, and that is only if I postpone drawing down income from my SIPP (which I may do, but at some point soon I will have to start that process).

When you pay asum  lump into a SIPP the provider only adds the equifvalent of basic rate tax relief.  Were there to be any higher rate relief due HMRC would pay that to you. rather than your pension.  So a net payment of £2880 applies no matter what your income is.

In your case with no earned income I believe the extra 20% higher rate relief would not be available.

Not sure about tne last bit. If you are paying 40% tax on unearned income surely you are entitled to 40% pension tax relief on that portion of it (the extra 20% paid by HMRC to you, not the pension) when paying it into a pension (albeit capped at £3,600 gross).

No-one gets tax relief for pension payments beyond their earned income.  

Rubbish, anyone with zero earned income can get tax relief on £3600 gross. OP can pay in £2880 net to a SIPP and get £720 tax relief, plus the contribution would extend his basic rate band giving higher rate relief if applicable. 

Linton

zagfles said:

Linton said:

FIREDreamer said:

Linton said:

chucknorris said:

Dazed_and_C0nfused said:

chucknorris said:

Dazed_and_C0nfused said:

chucknorris said:

Dazed_and_C0nfused said:

chucknorris said:

I think that I might have invested too much in my SIPP this tax tear (but I'm not sure), since I retired (just before the end of the last tax year) I have no relevant income. I invested £2,880 into my Sipp shortly after the start of this tax year, but I am a 40% tax payer, so should have I only invested £2,160?

With a relief at source (RAS) contribution you only ever receive basic rate relief from the scheme provider, so you pay £2,880 to end up with a gross contribution of £3,600.

If you are entitled to some higher rate relief then you need to contact HMRC to claim this.

You do not get a fixed extra 20%, the gross contribution increases your basic rate band by £3,600 and your liability is calculated using the increased basic rate band. This might give you a personal tax saving of £720. But it could be more or less depending on your overall tax situation.

Thanks for your reply.

I have to fill in a tax return every year to account for my dividend, corporate bond and rental income anyway, so liaising with HMRC is no bother. So are you saying that I have NOT disadvantaged myself by investing a net £2,880 into my Sipp? It's my first year without salary and so no relevant income, so I wasn't sure if I should have only invested £2,160 (£3,000 x 0.6, rather than the £3,600 x 0.8 that I did invest).

If you have no earnings and are under 75 then you can still contribute £3,600 gross each tax year.

Which is £2,880 from you and £720 in basic rate tax relief.

Any personal tax saving will be resolved via your Self Assessment return.

https://www.ajbell.co.uk/pensions/sipp-allowances

Thanks, but will I be eligible to receive the further 20% tax relief (up from the 20% already received to 40%). My uncertainty is whether everyone gets full tax relief in this situation (i.e. with no relevant income) or whether it is limited to only the basic 20% tax relief? Maybe this situation isn't any different and there is no reason why 40% (and 45%) tax payers can't get the full relief?

The gross contribution will increase your basic rate band by £3,600.

If you aren't a Scottish resident this means the basic rate band of £37,700 becomes £41,300.

How this personally benefits you is entirely dependent on a few things, your total taxable income and source of that income being key. 

You may also become eligible for Marriage Allowance which in itself would likely add £252 to any other personal tax saving.

And you may also benefit from a £1,000 savings nil rate band, instead of £500.

Thanks, but my income is way above the threshold of the higher rate band, its just under £100k, and next year I will have to refurbish an investment rental property if I want to keep my full personal allowance and avoid the notional 60% tax band, and that is only if I postpone drawing down income from my SIPP (which I may do, but at some point soon I will have to start that process).

When you pay asum  lump into a SIPP the provider only adds the equifvalent of basic rate tax relief.  Were there to be any higher rate relief due HMRC would pay that to you. rather than your pension.  So a net payment of £2880 applies no matter what your income is.

In your case with no earned income I believe the extra 20% higher rate relief would not be available.

Not sure about tne last bit. If you are paying 40% tax on unearned income surely you are entitled to 40% pension tax relief on that portion of it (the extra 20% paid by HMRC to you, not the pension) when paying it into a pension (albeit capped at £3,600 gross).

No-one gets tax relief for pension payments beyond their earned income.  

Rubbish, anyone with zero earned income can get tax relief on £3600 gross. OP can pay in £2880 net to a SIPP and get £720 tax relief, plus the contribution would extend his basic rate band giving higher rate relief if applicable. 

Corrected, thanks

pterri

I wouldn’t stress about it. Just fill in the SA and let the magic computer spit out a result. Worse case zero refund I think. 

chucknorris

My wife (who wasn't available earlier) has just confirmed that she does receive the extra 20% tax relief (via her self assessment tax return) as a higher rate tax payer

Dazed_and_C0nfused

chucknorris said:

My wife (who wasn't available earlier) has just confirmed that she does receive the extra 20% tax relief (via her self assessment tax return) as a higher rate tax payer

But it isn't necessarily 20%.

If you made that contribution when you were in tapered Personal Allowance territory it might be much more than a 20% personal tax saving because of the knock on effect of reducing your ANI.

Grumpy_chap

The OP mentions no earned income but dividend, corporate bond and rental income. 

Next year to avoid the £100k, they will refurbish one of their rental properties.  The OP needs to be mindful that not all refurbishment costs are necessarily deductible against Income Tax if the refurbishment is considered as capital works.

Is the dividend from a company that the OP controls?  There may be options for the company to make employer pension contributions instead of dividend.

Given the OP's income level and complexity of income sources, the OP may be well advised to engage the services of an Accountant to advise.

chucknorris

Grumpy_chap said:

The OP mentions no earned income but dividend, corporate bond and rental income. 

Next year to avoid the £100k, they will refurbish one of their rental properties.  The OP needs to be mindful that not all refurbishment costs are necessarily deductible against Income Tax if the refurbishment is considered as capital works.

Is the dividend from a company that the OP controls?  There may be options for the company to make employer pension contributions instead of dividend.

Given the OP's income level and complexity of income sources, the OP may be well advised to engage the services of an Accountant to advise.

I've been a landlord for 33 years and also handled all the financials and tax returns myself, I am fully aware what is tax deductible against income tax and capital gains. The dividend income is from a mixture of ETFs (I really don't need any help with those, I am perfectly happy how that is panning out).

chucknorris

Dazed_and_C0nfused said:

chucknorris said:

My wife (who wasn't available earlier) has just confirmed that she does receive the extra 20% tax relief (via her self assessment tax return) as a higher rate tax payer

But it isn't necessarily 20%.

If you made that contribution when you were in tapered Personal Allowance territory it might be much more than a 20% personal tax saving because of the knock on effect of reducing your ANI.

I have not yet started to exceed £100,000 in taxable income (mainly by investing in ISA's and pension, but also to a much lesser extent with premium bonds and NSI certificates). But I will start in lose my personal allowance in a year or 2, but I see that as good, not bad news, after all its better to get 40% of something rather than not earn anything over £100k. I have no interest in investments like VCT's etc, I see that as the tail wagging the dog (investing in things that I wouldn't otherwise invest in, only to reduce my tax burden).