Personal pension contribution limit

inkydolphin

Hi. I have a question about pension contributions to which I don't seem to be able to find the answer. Probably easiest to explain in an example.

A self-employed person starts a (SIPP) pension in 25/26 and contributes £10,000 into the pension in that year (£8,000 plus £2,000 tax relief). When it comes to working out their accounts for that year it turns out they only earned £7,000, meaning they have claimed too much tax relief.

My questions are (1) How much tax relief needs to be repaid? (2) Is this worked out automatically when submitting your tax return for that year? (3) Does the amount "earned" refer to turnover, profit or something else?

Any help very much appreciated!

Dazed_and_C0nfused

inkydolphin said:

Hi. I have a question about pension contributions to which I don't seem to be able to find the answer. Probably easiest to explain in an example.

A self-employed person starts a (SIPP) pension in 25/26 and contributes £10,000 into the pension in that year (£8,000 plus £2,000 tax relief). When it comes to working out their accounts for that year it turns out they only earned £7,000, meaning they have claimed too much tax relief.

My questions are (1) How much tax relief needs to be repaid? (2) Is this worked out automatically when submitting your tax return for that year? (3) Does the amount "earned" refer to turnover, profit or something else?

Any help very much appreciated!

AIUI it's,

1.  Not really relevant, it is £3,000 of the gross contribution that has been overpaid (part of which will be tax relief)

2.  I think the normal option is to sort it with the pension provider.

3.  Profit is what counts.

inkydolphin

Dazed_and_C0nfused said:

inkydolphin said:

Hi. I have a question about pension contributions to which I don't seem to be able to find the answer. Probably easiest to explain in an example.

A self-employed person starts a (SIPP) pension in 25/26 and contributes £10,000 into the pension in that year (£8,000 plus £2,000 tax relief). When it comes to working out their accounts for that year it turns out they only earned £7,000, meaning they have claimed too much tax relief.

My questions are (1) How much tax relief needs to be repaid? (2) Is this worked out automatically when submitting your tax return for that year? (3) Does the amount "earned" refer to turnover, profit or something else?

Any help very much appreciated!

AIUI it's,

1.  Not really relevant, it is £3,000 of the gross contribution that has been overpaid (part of which will be tax relief)

2.  I think the normal option is to sort it with the pension provider.

3.  Profit is what counts.

Thanks that's very useful!

Albermarle

Contact the provider and they will reverse part of your transactions. No need to involve HMRC.

Sarahspangles

inkydolphin said:

Hi. I have a question about pension contributions to which I don't seem to be able to find the answer. Probably easiest to explain in an example.

A self-employed person starts a (SIPP) pension in 25/26 and contributes £10,000 into the pension in that year (£8,000 plus £2,000 tax relief). When it comes to working out their accounts for that year it turns out they only earned £7,000, meaning they have claimed too much tax relief.

My questions are (1) How much tax relief needs to be repaid? (2) Is this worked out automatically when submitting your tax return for that year? (3) Does the amount "earned" refer to turnover, profit or something else?

Any help very much appreciated!

This happened to me in 2023/24 (due to an error on my employer’s part). I simply let my SIPP provider know, they asked a few questions then asked me to sell some funds to cash, returned the contribution to me and the relief to HMRC. It did mean that that year I contributed every last penny of my relevant UK earnings to my pension, whereas the following year I had to leave some headroom.

inkydolphin

Albermarle said:

Contact the provider and they will reverse part of your transactions. No need to involve HMRC.

Thanks for tip.

inkydolphin

Sarahspangles said:

inkydolphin said:

Hi. I have a question about pension contributions to which I don't seem to be able to find the answer. Probably easiest to explain in an example.

A self-employed person starts a (SIPP) pension in 25/26 and contributes £10,000 into the pension in that year (£8,000 plus £2,000 tax relief). When it comes to working out their accounts for that year it turns out they only earned £7,000, meaning they have claimed too much tax relief.

My questions are (1) How much tax relief needs to be repaid? (2) Is this worked out automatically when submitting your tax return for that year? (3) Does the amount "earned" refer to turnover, profit or something else?

Any help very much appreciated!

This happened to me in 2023/24 (due to an error on my employer’s part). I simply let my SIPP provider know, they asked a few questions then asked me to sell some funds to cash, returned the contribution to me and the relief to HMRC. It did mean that that year I contributed every last penny of my relevant UK earnings to my pension, whereas the following year I had to leave some headroom.

Useful to know, thanks!