Tax relief on contributions for a low earner

Pickledonionlover

Help me out here folks

A relative has just left a job but is keen to continue contributing to the occupational pension which is held with Scottish Widows.

They would like to pay the maximum they can.

As a low earner (they have found another part time job) they may not pay any income tax in the year 26/27.

Let's say they earned £3k in the part time job.

The HMRC advice is below my two questions below:

Q1. What constitutes ‘earnings’ is this any income (e.g. interest) or just work related income?

Q2. If the salary was £3k what would the tax relief threshold be? 80% of £3k I.e. £2.4k or £2,880?

Thanks in advance

If you do not pay Income Tax

Your pension provider can claim tax relief for you at 20% on contributions you pay into a pension each tax year (6 April to 5 April) up to either:

80% of your earnings in that year

£2,880 if you have no earnings in that year

QrizB

See "what counts as relevant UK earnings" here:

https://www.aegon.co.uk/adviser/knowledge-centre/technical-zone/what-are-relevant-uk-earnings

And the examples that follow it of things that aren't relevant UK earnings.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6667482/tax-relief-on-contributions-for-a-low-earner

Not paying tax isn't a problem.

How much did their P45 show they had earned from the job they have just left?

Do they expect to see £3k on the P60 they will get next April from the part time job?

Marcon

A relative has just left a job but is keen to continue contributing to the occupational pension which is held with Scottish Widows.

As a low earner (they have found another part time job) they may not pay any income tax in the year 26/27.

If it was a true occupational scheme, it may not be possible for ex-employees to continue to contribute to it, so that's a point to check. Even if they won't be earning enough to be automatically enrolled in their new employer's scheme, they can ask to join and their employer must normally enrol them. Although they may not qualify for an employer contribution if their earnings are too low, some employers will pay a contribution out of goodwill.

They would like to pay the maximum they can.

They can contribute 100% of their earnings in the tax year (the relevant word being 'earnings'). As mentioned above, that is the gross contribution - they'd pay in 80% of their earnings and the provider would add tax relief at the basic rate, assuming the new employer offers a 'relief at source' scheme.

The alternative to a relief at source scheme is something called a 'net pay' scheme - but they'd still get tax relief. See https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions/pension-tax-relief-problems-low-earners

DRS1

Q1. What constitutes ‘earnings’ is this any income (e.g. interest) or just work related income?

It is work related income - so salary or wages from employment or profit from self employment. Interest doesn't count nor does pension income or dividends or rent.

Q2. If the salary was £3k what would the tax relief threshold be? 80% of £3k I.e. £2.4k or £2,880?

Tax relief is limited to relief on contributions up to the higher of:

100% of your UK taxable earnings
£3,600

Those are gross contributions (including the tax relief claimed by the pension scheme). So the answer to your question is £2880 (as the net contribution).

But you look at earnings in a tax year so if he had some earnings from the old job in this tax year you'd have to add that to the £3k to get the UK taxable earnings for this year. That might put him over the £3600 figure so he could contribute a bit more.