SIPP - Benefits then work query

DRS1

Grumpy_chap said:

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

That doesn't sound right - unless she also paid some pension contributions in respect of her employment and so went over the £3600.

Marcon

singhini said:

Grumpy_chap said:

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

That's a good point and easily done.  

I don't think it's a point at all - or if it is, I'm not sure quite what the point is.

What is meant by 'exclusive'? Her tax relievable contributions would have been the higher of her earned income or £3,600, subject to the prevailing annual allowance at the time (and it doesn't sound as if she was within a mile of breaching that!). 

Good clear explanation here 

https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions#:~:text=than%20employee%20contributions.-,Relief%20for%20non%2Dearners,goes%20into%20Steven's%20pension%20pot. including:

Relief at source scheme

If your pension uses the relief at source method of tax relief and you earn, say, £5,000 in the 2025/26 tax year, you can make a gross contribution of up to £5,000 into that pension. This equates to a net contribution (the amount actually paid in by you) of £4,000, because you make your contribution net of basic rate tax relief (£1,000) which the pension scheme will claim directly from HMRC. If you earn £3,000, you can still make a gross contribution of £3,600 (£2,880 net). In either case, the fact that you do not earn enough to pay any income tax does not prevent the pension scheme claiming the tax relief.

Grumpy_chap

DRS1 said:

Grumpy_chap said:

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

That doesn't sound right - unless she also paid some pension contributions in respect of her employment and so went over the £3600.

Marcon said:

I don't think it's a point at all - or if it is, I'm not sure quite what the point is.

What is meant by 'exclusive'? Her tax relievable contributions would have been the higher of her earned income or £3,600, subject to the prevailing annual allowance at the time (and it doesn't sound as if she was within a mile of breaching that!). 

Good clear explanation here 

https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions#:~:text=than%20employee%20contributions.-,Relief%20for%20non%2Dearners,goes%20into%20Steven's%20pension%20pot. including:

Relief at source scheme

If your pension uses the relief at source method of tax relief and you earn, say, £5,000 in the 2025/26 tax year, you can make a gross contribution of up to £5,000 into that pension. This equates to a net contribution (the amount actually paid in by you) of £4,000, because you make your contribution net of basic rate tax relief (£1,000) which the pension scheme will claim directly from HMRC. If you earn £3,000, you can still make a gross contribution of £3,600 (£2,880 net). In either case, the fact that you do not earn enough to pay any income tax does not prevent the pension scheme claiming the tax relief.

Thank you.

It was a few years back and I think you may well be correct - jogged the memory - that she had a very small amount of employment pension contribution that landed in the tax year.
She had paid the full £3.6k (grossed up) around Christmas time, not expecting to work.  Then got some work which made a little bit of extra pension gone in so the limit was breached by a small amount.  Overall still better to have the money than not, even though there was a little tax arising.
I think it is still a point to be aware of if making maximum (non-working) contribution and then starting employment.

Marcon

Grumpy_chap said:

DRS1 said:

Grumpy_chap said:

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

That doesn't sound right - unless she also paid some pension contributions in respect of her employment and so went over the £3600.

Marcon said:

I don't think it's a point at all - or if it is, I'm not sure quite what the point is.

What is meant by 'exclusive'? Her tax relievable contributions would have been the higher of her earned income or £3,600, subject to the prevailing annual allowance at the time (and it doesn't sound as if she was within a mile of breaching that!). 

Good clear explanation here 

https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions#:~:text=than%20employee%20contributions.-,Relief%20for%20non%2Dearners,goes%20into%20Steven's%20pension%20pot. including:

Relief at source scheme

If your pension uses the relief at source method of tax relief and you earn, say, £5,000 in the 2025/26 tax year, you can make a gross contribution of up to £5,000 into that pension. This equates to a net contribution (the amount actually paid in by you) of £4,000, because you make your contribution net of basic rate tax relief (£1,000) which the pension scheme will claim directly from HMRC. If you earn £3,000, you can still make a gross contribution of £3,600 (£2,880 net). In either case, the fact that you do not earn enough to pay any income tax does not prevent the pension scheme claiming the tax relief.

Thank you.

It was a few years back and I think you may well be correct - jogged the memory - that she had a very small amount of employment pension contribution that landed in the tax year.
She had paid the full £3.6k (grossed up) around Christmas time, not expecting to work.  Then got some work which made a little bit of extra pension gone in so the limit was breached by a small amount.  Overall still better to have the money than not, even though there was a little tax arising.
I think it is still a point to be aware of if making maximum (non-working) contribution and then starting employment.

Ah - that makes much more sense! Thank you. Completely agree with your final point.

singhini

Marcon said:

singhini said:

Grumpy_chap said:

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

That's a good point and easily done.  

I don't think it's a point at all - or if it is, I'm not sure quite what the point is.

What is meant by 'exclusive'? Her tax relievable contributions would have been the higher of her earned income or £3,600, subject to the prevailing annual allowance at the time (and it doesn't sound as if she was within a mile of breaching that!). 

Good clear explanation here 

https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions#:~:text=than%20employee%20contributions.-,Relief%20for%20non%2Dearners,goes%20into%20Steven's%20pension%20pot. including:

Relief at source scheme

If your pension uses the relief at source method of tax relief and you earn, say, £5,000 in the 2025/26 tax year, you can make a gross contribution of up to £5,000 into that pension. This equates to a net contribution (the amount actually paid in by you) of £4,000, because you make your contribution net of basic rate tax relief (£1,000) which the pension scheme will claim directly from HMRC. If you earn £3,000, you can still make a gross contribution of £3,600 (£2,880 net). In either case, the fact that you do not earn enough to pay any income tax does not prevent the pension scheme claiming the tax relief.

Ah OK i thought if earnings were £3,000 a year then the max pension contribution would be £2,400 + tax relief = £3,000  i.e. actual earnings take presidents.

What If i earn £1,000 a month and so dont pay income tax or NI (therefore my "take home pay" remains £1,000 a month. Can i put that into my SIPP?  -----> effectively what im asking is, can i put £12,0000 into a SIPP and receive £3,000 tax relief? 

MallyGirl

singhini said:

Marcon said:

singhini said:

Grumpy_chap said:

Congratulations to the OP on securing employment.

I just thought I'd mention that the £2,880 (£3.6k) or the earned income limits apply on an "exclusive" basis.
My wife once got caught on this.  She had paid her £2,880 (£3.6k) but then got a job for the end of the tax year which meant the £3.6k pension contributions had exceeded her earned income and her annual allowance was breached.

That's a good point and easily done.  

I don't think it's a point at all - or if it is, I'm not sure quite what the point is.

What is meant by 'exclusive'? Her tax relievable contributions would have been the higher of her earned income or £3,600, subject to the prevailing annual allowance at the time (and it doesn't sound as if she was within a mile of breaching that!). 

Good clear explanation here 

https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions#:~:text=than%20employee%20contributions.-,Relief%20for%20non%2Dearners,goes%20into%20Steven's%20pension%20pot. including:

Relief at source scheme

If your pension uses the relief at source method of tax relief and you earn, say, £5,000 in the 2025/26 tax year, you can make a gross contribution of up to £5,000 into that pension. This equates to a net contribution (the amount actually paid in by you) of £4,000, because you make your contribution net of basic rate tax relief (£1,000) which the pension scheme will claim directly from HMRC. If you earn £3,000, you can still make a gross contribution of £3,600 (£2,880 net). In either case, the fact that you do not earn enough to pay any income tax does not prevent the pension scheme claiming the tax relief.

Ah OK i thought if earnings were £3,000 a year then the max pension contribution would be £2,400 + tax relief = £3,000  i.e. actual earnings take presidents.

What If i earn £1,000 a month and so dont pay income tax or NI (therefore my "take home pay" remains £1,000 a month. Can i put that into my SIPP?  -----> effectively what im asking is, can i put £12,0000 into a SIPP and receive £3,000 tax relief? 

If you earn £12,000 you can contribute £12,000 gross into a pension. In practice this means that you contribute £9,600 and another £2,400 tax relief is added a little later. You do not need to have paid tax to get tax relief