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Non earner HRT payer tax relief on £2880 contribution

Pat38493
Posts: 3,132 Forumite

If a non earner is receiving pension total income across all pensions that puts them in the 40% tax bracket, can they claim back the extra 20% after making a contribution of £2880 to a SIPP?
e.g. total pensions 60K, contribution from after tax money £2880. After 20% tax relief this becomes £3600. Can you then claim back another £720 of your higher rate tax that was paid or does this only apply if you have earned income?
e.g. total pensions 60K, contribution from after tax money £2880. After 20% tax relief this becomes £3600. Can you then claim back another £720 of your higher rate tax that was paid or does this only apply if you have earned income?
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Pat38493 said:If a non earner is receiving pension total income across all pensions that puts them in the 40% tax bracket, can they claim back the extra 20% after making a contribution of £2880 to a SIPP?
e.g. total pensions 60K, contribution from after tax money £2880. After 20% tax relief this becomes £3600. Can you then claim back another £720 of your higher rate tax that was paid or does this only apply if you have earned income?
But they can have their basic rate band extended by £3,600 and their tax liability calculated using the extended basic rate band (and reduced adjusted net income).
That may result in a tax saving of £720 but not because it is an "extra 20%".2 -
Dazed_and_C0nfused said:Pat38493 said:If a non earner is receiving pension total income across all pensions that puts them in the 40% tax bracket, can they claim back the extra 20% after making a contribution of £2880 to a SIPP?
e.g. total pensions 60K, contribution from after tax money £2880. After 20% tax relief this becomes £3600. Can you then claim back another £720 of your higher rate tax that was paid or does this only apply if you have earned income?
But they can have their basic rate band extended by £3,600 and their tax liability calculated using the extended basic rate band (and reduced adjusted net income).
That may result in a tax saving of £720 but not because it is an "extra 20%".0 -
Just contact HMRC and tell them you contribute £3600 to a SIPP and they will sort it out. If you do it each year they will adjust your future tax free amount with a "personal pension payments" entry and push that out to your code so you don't pay the 40% on it in the first place, they will likely do it for this year as well.
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molerat said:Just contact HMRC and tell them you contribute £3600 to a SIPP and they will sort it out. If you do it each year they will adjust your future tax free amount with a "personal pension payments" entry and push that out to your code so you don't pay the 40% on it in the first place, they will likely do it for this year as well.
Hence I can hopefully convince her to continue paying the £2880 as the benefit will be double what it is today.1 -
Dazed_and_C0nfused said:Pat38493 said:If a non earner is receiving pension total income across all pensions that puts them in the 40% tax bracket, can they claim back the extra 20% after making a contribution of £2880 to a SIPP?
e.g. total pensions 60K, contribution from after tax money £2880. After 20% tax relief this becomes £3600. Can you then claim back another £720 of your higher rate tax that was paid or does this only apply if you have earned income?
But they can have their basic rate band extended by £3,600 and their tax liability calculated using the extended basic rate band (and reduced adjusted net income).
That may result in a tax saving of £720 but not because it is an "extra 20%".
According to my calculations, if you contribute £2880 of net income to a SIPP and then take it out again in the same tax year, it's impossible to be worse off then? Even if for example your pension income happened to be £53150 (normal 20% tax limt plus £2880). You will always end up at least £180 better off, sometimes more?
On the other hand, according to my Voyant Go cash flow planning software, you might end up worse off if you end up paying 40% tax in a later year that you would otherwise have avoided. In our situation as a couple, it seems like if I contribute 2 x 2880 to the SIPPS from retirement until age 75, this results in my running out of cash outside the pension several years earlier. This then results in me having to make larger taxable withdrawals, and paying about £20K of higher rate tax over several years, whereas if I had never made those contributions, I have enough cash to avoid paying any 40% tax throughout the entire plan.
It seems like this offsets the gains so I may end up worse off, or at least no better off.
It's hard to be exact because you get investment gains on the tax relief credited to the SIPP, and also, it appeasr to me that Voyant Go, does not perform the adjustment you mentioned above, so once my wife's state pension kicks in later on, and she becomes a 40% taxpayer, it does not extend the basic rate band and she still pays the same amount of 40% tax.
However it still feels like £20K of 40% tax that would never have otherwise been paid, is going to largely offset any gains
Therefore it seems to me that if you are in a situation where you will, or might, cross tax thresholds in certain years, you need to be careful about that £2880 contribution and when you take it back out again?0 -
Just like any pension contribution, if you withdraw at a higher rate of tax than you contribute at you will lose out.0
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