Paying into workplace pension

aroominyork

A question for a friend... can you pay a lump sum (c.£20k) into a workplace pension (Royal London), not from salary but from a bank account? And do it as a personal net contribution so that RL reclaim tax from HMRC?

Rich1976

My other half is with RL and pays lump sums every so often without issue.

just need to make sure it’s not over the maximum permitted each year .

aroominyork

Talking of the max permitted, does rental income count towards the salary cap? It is taxed income which I thought would be key, but the term salary cap suggests otherwise.

jimjames

aroominyork said:

Talking of the max permitted, does rental income count towards the salary cap? It is taxed income which I thought would be key, but the term salary cap suggests otherwise.

No, rental income doesn't count

aroominyork

jimjames said:

aroominyork said:

Talking of the max permitted, does rental income count towards the salary cap? It is taxed income which I thought would be key, but the term salary cap suggests otherwise.

No, rental income doesn't count

Only employed and self-employed income? Anything else? 

kempiejon

I think the phrase is relevant UK income.

employment income, such as: pay, wages, bonus, overtime, or commission - but only if taxable under Section 7(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

LHW99

I think if self-employed, then it's profit that counts, not turnover

Albermarle

Rich1976 said:

My other half is with RL and pays lump sums every so often without issue.

just need to make sure it’s not over the maximum permitted each year .

Just for the benefit of other readers who maybe with other workplace pension providers.

Some will be set up only to accept net payments or only employer payments ( with a salary sacrifice scheme).
You need to check in advance that they can accept a personal lump sum payment, and they will add basic rate tax relief to it. 

aroominyork

For a different purpose (OH this time) I need to check how salary cap is calculated when workplace pension is in a net pay arrangement. Say employee pension contributions are 5% and annual salary is £24,000. Taxable pay is £22,800 which is the amount shown on P45 (OH recently retired) as ‘total pay in this employment’. It seems to me that OH can make SIPP contributions which, when grossed up and added to her workplace contributions, total £24,000 (so 24000*0.95*0.8=£18,240 net to SIPP). Which would mean the salary used for calculating salary cap is not the number shown on her P45 but is ‘total pay in this employment’/0.95.

Dazed_and_C0nfused

aroominyork said:

For a different purpose (OH this time) I need to check how salary cap is calculated when workplace pension is in a net pay arrangement. Say employee pension contributions are 5% and annual salary is £24,000. Taxable pay is £22,800 which is the amount shown on P45 (OH recently retired) as ‘total pay in this employment’. It seems to me that OH can make SIPP contributions which, when grossed up and added to her workplace contributions, total £24,000 (so 24000*0.95*0.8=£18,240 net to SIPP). Which would mean the salary used for calculating salary cap is not the number shown on her P45 but is ‘total pay in this employment’/0.95.

The £24,000 isn't a factor, her taxable earnings are only £22,800 so unless she has other income relevant for pension contribution purposes she will be limited to contributing £22,800.

Which would be £18,240 from her plus the basic rate relief.

The fact she hasn't paid £4,560 in tax is irrelevant, she can still get that amount of basic rate pension tax relief.

aroominyork

Yes, I get that she can pay £18,240 into her SIPP. Her total gross pension contributions would be (24000*5%) + (18240/80%) = 24000.

If this was relief at source, her taxable pay would be £24,000, the pension provider would receive £960 and reclaim £240 from HMRC. Her gross pay would be the same as her taxable pay which would be the same as her salary cap.

But it seems that with net pay, her workplace contribution is ignored when calculating the salary cap, meaning the salary cap does not reflect the total she can pay into pension (both workplace and SIPP) but only the SIPP element.