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Carrying forward SIPP tax relief if not earning
aroominyork
Posts: 3,886 Forumite
My wife is not working at the moment. In 2018-19 she worked until June and I think stayed just within the personal allowance threshold.
I just read that non-taxpayers can pay £2880 net / £3600 gross into a SIPP each year. Does this get carried forward, so as well as paying in £3600 for 2019-20 can she now pay in £3600 for 2018-19?
I just read that non-taxpayers can pay £2880 net / £3600 gross into a SIPP each year. Does this get carried forward, so as well as paying in £3600 for 2019-20 can she now pay in £3600 for 2018-19?
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No, that limit (her earnings with a minimum floor of £3600) never carries forward.
What carries forward is the fact that is she had enough earnings she could pay £40k a year, and if she didn't pay anything it would carry forward to £80k and then £120k. But that annual limit is only one of her limits. Her other, lower limit is her earnings (with minimum floor of £3600). So with no earnings in 2019/20, the most she can pay in is £3600 gross. She can't increase that to £7200 just because she didn't think to make any contributions in 2018/19.
To make £7200 gross contributions now, she'd need £7200 gross earnings this year.
To make £3600 gross contributions for 2018/19 if she didn't think to do it at the time, she'd need to use a time machine to go back to 5 April 2019 or earlier and make those contributions while that tax year is still in progress.0 -
Thanks bowlhead. Re "minimum floor of £3600" does that mean that:
- if she earns under £3600 she can make £0 SIPP contributions
- if she earns £3600 or over she can make SIPP contributions (grossed up) equal to her earnings (up to £40k max)?
In the meantime, I'll check eBay for time machines.0 -
aroominyork wrote: »Thanks bowlhead. Re "minimum floor of £3600" does that mean that:
- if she earns under £3600 she can make £0 SIPP contributions
- if she earns £3600 or over she can make SIPP contributions (grossed up) equal to her earnings (up to £40k max)?
In the meantime, I'll check eBay for time machines.
If she earns £0-3600, she can contribute up to £3600.....
Your second statement is correct though......
PS, it's not just SIPP contributions btw, its ALL pension contributions....0 -
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Technically, she can contribute more than that but only claim tax relief on £3600 gross.I am one of the Dogs of the Index.0
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Yes, a point worth making but you'd not do that if contributing out of taxed savings, getting no tax relief and then paying a second lot of tax when withdrawing post-retirement. Better would be to fund your ISA and then invest in a general trading account.ChesterDog wrote: »Technically, she can contribute more than that but only claim tax relief on £3600 gross.0 -
A pretty obscure example of when it would be useful would be if she has maxed out her ISA allowances but has loads of unused personal allowance each year. She could contribute extra to a pension (without getting relief because it was over the £3600), have it grow without tax on the income or capital gains produced within the pension (just like if it was in an ISA), and withdraw it over a few years (so partially income-taxable, but within her annual allowance).aroominyork wrote: »Yes, a point worth making but you'd not do that if contributing out of taxed savings, getting no tax relief and then paying a second lot of tax when withdrawing post-retirement. Better would be to fund your ISA and then invest in a general trading account.
If the proceeds can ultimately be drawn out of the pension without an income tax charge, there will have been no taxation on the activities at all, including no CGT (and avoids needing to keep transaction records for CGT).
Pension assets can also be distributed to beneficiaries outside the estate for IHT, as well as not being counted in a bankruptcy or benefits means-test.0 -
It might be an obscure example but I am sure a few people will benefit from it. When I wrote that last post I felt bowlhead over my shoulder waiting to correct the over-simplicity. I had CGT in the back of my mind but hadn’t considered tax on income, IHT or, thank God, bankruptcy.bowlhead99 wrote: »A pretty obscure example of when it would be useful would be if she has maxed out her ISA allowances but has loads of unused personal allowance each year. She could contribute extra to a pension (without getting relief because it was over the £3600), have it grow without tax on the income or capital gains produced within the pension (just like if it was in an ISA), and withdraw it over a few years (so partially income-taxable, but within her annual allowance).
If the proceeds can ultimately be drawn out of the pension without an income tax charge, there will have been no taxation on the activities at all, including no CGT (and avoids needing to keep transaction records for CGT).
Pension assets can also be distributed to beneficiaries outside the estate for IHT, as well as not being counted in a bankruptcy or benefits means-test.0 -
Very interesting. I put £2,880pa into a SIPP I have no intention of touching, it's purely IHT avoidance.bowlhead99 wrote: »Pension assets can also be distributed to beneficiaries outside the estate for IHT, as well as not being counted in a bankruptcy or benefits means-test.
If say I increased that to £10,000pa gross do I just tell the SIPP provider my earnings are less than £3,600.
I don't want to give the money away absolutely as, if I need care, I want the best so would draw on the SIPP as a last resort.0 -
Very interesting. I put £2,880pa into a SIPP I have no intention of touching, it's purely IHT avoidance.
If say I increased that to £10,000pa gross do I just tell the SIPP provider my earnings are less than £3,600.
I don't want to give the money away absolutely as, if I need care, I want the best so would draw on the SIPP as a last resort.
I have made similar contributions in the past.
Before doing so, I advised my provider (which was HL) that I didn't want them to claim any tax relief.
It worked fine.I am one of the Dogs of the Index.0
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