SIPP contribution & tax relief

BrainWars

There's probably a relevant thread around but I couldn't find it.. 

I'm seeking clarification regarding SIPP contributions and tax relief. My situation is as follows:

• I have flexible PAYE work earning around £10,000 annually.
• I also earn between £10,000 and £17,570 annually in interest from savings.
• My personal allowance is £12,570.

Questions:

1. I'm unsure of the maximum amount I can pay into my SIPP with tax relief. Is it:

1. £3,600 (£2,880 net contribution + £720 tax relief), since I don't pay income tax?
2. £10,000 (£8,000 net contribution + £2,000 tax relief), based on my earnings?
3. Another amount?

2. Since I’m paid weekly, any income tax I incur is refunded periodically. Should my contributions reflect the total amount (i.e. £3600) or the net amount (i.e. £2880)?

3. My understanding is that savings interest isn’t classified as earned income, so it doesn’t qualify for tax relief. Is this correct?

4. If I contribute my entire earned income (£10,000) to my SIPP, do I still have to pay tax on the interest from my savings?

TheSpectator

BrainWars said:

There's probably a relevant thread around but I couldn't find it.. 

I'm seeking clarification regarding SIPP contributions and tax relief. My situation is as follows:

• I have flexible PAYE work earning around £10,000 annually.
• I also earn between £10,000 and £17,570 annually in interest from savings.
• My personal allowance is £12,570.

Questions:

1. I'm unsure of the maximum amount I can pay into my SIPP with tax relief. Is it:

1. £3,600 (£2,880 net contribution + £720 tax relief), since I don't pay income tax?
2. £10,000 (£8,000 net contribution + £2,000 tax relief), based on my earnings?
3. Another amount?

2. Since I’m paid weekly, any income tax I incur is refunded periodically. Should my contributions reflect the total amount (i.e. £3600) or the net amount (i.e. £2880)?

3. My understanding is that savings interest isn’t classified as earned income, so it doesn’t qualify for tax relief. Is this correct?

4. If I contribute my entire earned income (£10,000) to my SIPP, do I still have to pay tax on the interest from my savings?

What you have paid in income tax is irrelevant. With gross earnings of £10,000 yiu can pay £8,000 into a SIPP and £2,000 tax relief will be credited.

Only earned income counts so the interest is irrelevent when considering pension contributions.

Ans yes, you will stay need ro pay tax on your earnings and savings income above £18,570.

molerat

You will need to pay tax on any interest above (12570-10000) + 5000 + 1000 so above £8570

With interest above £10000 you should be subject to self assessment.