Earnings cap for pension tax relief

MeteredOut

lassfarfromhome said:

NoMore said:

Are the gross earnings your quoting before or after the salary sacrifice ?

If before, you take the salary sacrifice off and that's the gross amount you can contribute into a pension and get tax relief.

If after then that's the gross amount you can contribute. 

Both assuming you have made no other relief at source contributions.

The gross earnings of 80k is after salary sacrifice has been taken off.  So, I understand the max I can get tax relief on is £80k.  But I'm trying to work out how much I should now put into my SIPP (I want to put in the max I can get tax relief on), and I don't know whether I can put in the whole £80k, or whether I need to deduct from that the pension contributions I have already made by salary sacrifice.

All payments count towards your annual allowance - so the total sum of whatever is paid by your employer via salary sacrifice, plus any payments you make (grossed up including any relief) 

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

So, in your example, you can pay (base salary - all salary sacrifice payments in the year - total of any personal payments, including tax relief, you've already made to your pension in the year) * 80% and the pension company will add the tax relief onto your personal payments to take it up to your allowance.

EDIT: added clarity in case OP has already made personal payments into pension

lassfarfromhome

MeteredOut said:

lassfarfromhome said:

NoMore said:

Are the gross earnings your quoting before or after the salary sacrifice ?

If before, you take the salary sacrifice off and that's the gross amount you can contribute into a pension and get tax relief.

If after then that's the gross amount you can contribute. 

Both assuming you have made no other relief at source contributions.

The gross earnings of 80k is after salary sacrifice has been taken off.  So, I understand the max I can get tax relief on is £80k.  But I'm trying to work out how much I should now put into my SIPP (I want to put in the max I can get tax relief on), and I don't know whether I can put in the whole £80k, or whether I need to deduct from that the pension contributions I have already made by salary sacrifice.

All payments count towards your annual allowance - so the total sum of whatever is paid by your employer via salary sacrifice, plus any payments you make (grossed up including any relief) 

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

So, in your example, you can pay (£80K - all salary sacrifice payments in the year) * 80% and the pension company will add the tax relief onto your personal payments to take it up to your £80K allowance.

Thanks everyone for your comments.  However, I understand that there are two separate issues.
1) the maximum amount on which you can get pension tax relief is limited to 100% of your gross earnings; and
2) if you contribute more than your annual allowance, you will trigger an annual allowance charge.

I am concerned with the first of these.  

To work out how much more I can put into my SIPP to meet my goal of contributing 100% of my gross earnings I need to work out how much I have already contributed to my pensions (ie what are my personal pension contributions so far for this purpose).  My question is, do I need to deduct my salary sacrifice contributions from my gross earnings to give me the further amount to contribute, or not.

I have already satisfied myself that I won't trigger an annual allowance charge so I'm not asking about the annual allowance.

NoMore

OK so the max you can get tax relief on is 80k. You have already made some relief at source contributions to your SIPP this year ? Then the max gross you can put in the SIPP via RAS is 80k minus gross contributions to the SIPP. 

Once you've established that number you contribute 80% of it and the SIPP claims basic tax relief and  you claim any further tax relief from HMRC.

However this will take you above the AA so you will have to use carry forward such that you have enough AA to cover the Salary sacrifice contributions and what you have in your SIPP.

Remember the Tax relief limit and the AA are separate limits with different aims and rules and should not be conflated together. Things like 'the max you can contribute is the lower of AA or your earnings' just lead to confusion as they are mixing up the different limits together.

lassfarfromhome

NoMore said:

OK so the max you can get tax relief on is 80k. You have already made some relief at source contributions to your SIPP this year ? Then the max gross you can put in the SIPP via RAS is 80k minus gross contributions to the SIPP. 

Once you've established that number you contribute 80% of it and the SIPP claims basic tax relief and  you claim any further tax relief from HMRC.

However this will take you above the AA so you will have to use carry forward such that you have enough AA to cover the Salary sacrifice contributions and what you have in your SIPP.

Remember the Tax relief limit and the AA are separate limits with different aims and rules and should not be conflated together. Things like 'the max you can contribute is the lower of AA or your earnings' just lead to confusion as they are mixing up the different limits together.

Thank you so much.  Yes, I agree re the conflation of the tax relief limit and the AA creating confusion.

So, it sounds like you are saying that assuming:
-My gross earnings this year are 80k
-My salary sacrifice contributions to my workplace pension were £5k
-I have not made any contributions to my SIPP so far this year,
I can put 80k gross into my SIPP?

NoMore

lassfarfromhome said:

NoMore said:

OK so the max you can get tax relief on is 80k. You have already made some relief at source contributions to your SIPP this year ? Then the max gross you can put in the SIPP via RAS is 80k minus gross contributions to the SIPP. 

Once you've established that number you contribute 80% of it and the SIPP claims basic tax relief and  you claim any further tax relief from HMRC.

However this will take you above the AA so you will have to use carry forward such that you have enough AA to cover the Salary sacrifice contributions and what you have in your SIPP.

Remember the Tax relief limit and the AA are separate limits with different aims and rules and should not be conflated together. Things like 'the max you can contribute is the lower of AA or your earnings' just lead to confusion as they are mixing up the different limits together.

Thank you so much.  Yes, I agree re the conflation of the tax relief limit and the AA creating confusion.

So, it sounds like you are saying that assuming:
-My gross earnings this year are 80k
-My salary sacrifice contributions to my workplace pension were £5k
-I have not made any contributions to my SIPP so far this year,
I can put 80k gross into my SIPP?

Yes as long as:-
1) you haven't made any other RAS contributions (in your first post you said you had), the total RAS to SIPP can't exceed 80k.
2) have enough AA plus carryover to cover all the contributions this year so all your RAS to SIPP + Salary Sacrifice + other employer contributions
3) the 80k you quote is after Salary Sacrifice.

Triumph13

Okay.  So your salary was £85k, but you sacrificed £5k leaving £80k.  As long as pre-sacrifice employer contributions were no more that £15k ( as otherwise you wouldn't have enough carry forward) you can pay £64k into your SIPP and it will be grossed up to £80k.  You then have zero taxable income for the year, so you can reclaim all the tax you've paid.

Dazed_and_C0nfused

lassfarfromhome said:

NoMore said:

OK so the max you can get tax relief on is 80k. You have already made some relief at source contributions to your SIPP this year ? Then the max gross you can put in the SIPP via RAS is 80k minus gross contributions to the SIPP. 

Once you've established that number you contribute 80% of it and the SIPP claims basic tax relief and  you claim any further tax relief from HMRC.

However this will take you above the AA so you will have to use carry forward such that you have enough AA to cover the Salary sacrifice contributions and what you have in your SIPP.

Remember the Tax relief limit and the AA are separate limits with different aims and rules and should not be conflated together. Things like 'the max you can contribute is the lower of AA or your earnings' just lead to confusion as they are mixing up the different limits together.

Thank you so much.  Yes, I agree re the conflation of the tax relief limit and the AA creating confusion.

So, it sounds like you are saying that assuming:
-My gross earnings this year are 80k
-My salary sacrifice contributions to my workplace pension were £5k
-I have not made any contributions to my SIPP so far this year,
I can put 80k gross into my SIPP?

You aren't paying anything into a pension in that example. 

You are agreeing to a reduced salary in return for £5k of employer contributions.  That is why no pension tax relief is added to your pension fund, none is due on employer contributions.

In that example you can add £60k to a SIPP and the pension company will add £15k in basic rate pension tax relief.  Making a gross contribution of £75k.

If you tell HMRC about this they will increase your basic rate band from £37,700 to  £112,700, meaning that unless you have a lot of other taxable income you won't be liable to pay any higher rate tax.

NB. This post isn't covering the annual allowance element.

lassfarfromhome

NoMore said:

lassfarfromhome said:

NoMore said:

OK so the max you can get tax relief on is 80k. You have already made some relief at source contributions to your SIPP this year ? Then the max gross you can put in the SIPP via RAS is 80k minus gross contributions to the SIPP. 

Once you've established that number you contribute 80% of it and the SIPP claims basic tax relief and  you claim any further tax relief from HMRC.

However this will take you above the AA so you will have to use carry forward such that you have enough AA to cover the Salary sacrifice contributions and what you have in your SIPP.

Remember the Tax relief limit and the AA are separate limits with different aims and rules and should not be conflated together. Things like 'the max you can contribute is the lower of AA or your earnings' just lead to confusion as they are mixing up the different limits together.

Thank you so much.  Yes, I agree re the conflation of the tax relief limit and the AA creating confusion.

So, it sounds like you are saying that assuming:
-My gross earnings this year are 80k
-My salary sacrifice contributions to my workplace pension were £5k
-I have not made any contributions to my SIPP so far this year,
I can put 80k gross into my SIPP?

Yes as long as:-
1) you haven't made any other RAS contributions (in your first post you said you had), the total RAS to SIPP can't exceed 80k.
2) have enough AA plus carryover to cover all the contributions this year so all your RAS to SIPP + Salary Sacrifice + other employer contributions
3) the 80k you quote is after Salary Sacrifice.

I have actually made RAS contributions already but was just keeping things simple for that example

lassfarfromhome

Thanks all.  There seems (unless I'm misunderstanding) to be a difference of opinion between NoMore and Triumph13 on the one hand, who say I can put in 80k in my example and get tax relief, and DazedandConfused on the other hand who says I can only put in 75k and get tax relief.  You are obviously all extremely knowledgable so not sure where to go from here....but thanks for all assistance so far!

Dazed_and_C0nfused

lassfarfromhome said:

Thanks all.  There seems (unless I'm misunderstanding) to be a difference of opinion between NoMore and Triumph13 on the one hand, who say I can put in 80k in my example and get tax relief, and DazedandConfused on the other hand who says I can only put in 75k and get tax relief.  You are obviously all extremely knowledgable so not sure where to go from here....but thanks for all assistance so far!

As, based on what you posted, your P60 (or P45) is only going to show taxable earnings of £75k I fail to see how you can contribute more than that (for tax relief purposes).

-My gross earnings this year are 80k

-My salary sacrifice contributions to my workplace pension were £5k