SIPP Questions

robin61 wrote: »

So I guess the question is does your £11k definitely count as UK earnings ?

I agree that this is the main question to ask before anything else can be answered.

Is the work done for that "UK employment" done in the UK or elsewhere?

Milb wrote: »

Yes this income is solely tied to activity in the U.K.

So the SIPP contribution would reduce taxable wages in my P60? Meaning I can generate more income without it being in the 20% tax bracket.

No it wouldnt reduce the gross pay on your P60. That would still be £11k.
Have a look at my previous post again that tells you how the tax relief works. Basically it means you put £8800 into your SIPP. It gets made up to £11,000. You can put This in providing you have £11k in UK earnings.

Do you actually get a P60 from your employer or a tax code from HMRC ?

Milb wrote: »

Yes I get a P60, pay NI and even pay some income tax due to an error in tax code from previous P11D or something. It is also nothing to do with my employment abroad, essentially it is pay for some consulting/retainer from a previous employer in the U.K. I negotiated up to that amount, it isn't a dodgy as it might initially sound, at least I hope!

It finally clicked than any additional income would mean that I essentially pay for the tax relief I am receiving, which is perhaps the more moral thing to do.

I do not think it's exactly right that I could put in the full £8,800 and get full tax relief up to my earnings, and have the remaining amount minus NI. However, I will still up my contributions from the £2,880. They have got me before and will no doubt get me again tax wise.

Thanks everyone for your help.

If you are paying into a SIPP the 20% tax relief is added to your contributions by the pension company and then they claim it from HMRC.

You can save whatever you earn as a gross salary in a tax year into your SIPP up to a maximum of £40k per annum but you can't put in more than you earn in that tax year. So if you earn a gross salary of £11k you can put £11k gross into your SIPP to get a gross figure of £11k you only need to put in £8800 net.

Here is an online calculator.

http://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator

So you can earn £11k pay no income tax on it as your personal allowance is £11k you can keep £2200 and put the remaining £8800 into your SIPP and the pension company will top it up to £11000.
The small amount you pay in NI does not matter as it is your gross salary that determines how much you can invest.

Milb wrote: »

I recently started a SIPP and have a few questions regarding its affect on my taxes.

When you started the SIPP did you tell the SIPP firm that you are not a UK resident person? If you did not and are not UK resident for income tax purposes you should do so as soon as possible. Normally a UK firm would refuse to allow you to open a new SIPP and would refuse to allow you to make contributions, in part on the basis that you would be assumed not to be entitled to any UK tax relief on your pension contributions.

Detailed rules on whether you're a relevant UK individual eligible to receive UK pension tax relief are given in PTM044100:

"An individual is a relevant UK individual for a tax year if they:

• have relevant UK earnings chargeable to income tax for that tax year,
• are resident in the United Kingdom at some time during that tax year,
• were resident in the UK at some time during the five tax years immediately before the tax year in question and they were also resident in the UK when they joined the pension scheme, or
• have for that tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003), or
• are the spouse or civil partner of an individual who has for the tax year general earnings from overseas Crown employment subject to UK tax (as defined by section 28 of the Income Tax (Earnings and Pensions) Act 2003)."

It appears that you are no longer UK resident for income tax so whether you were in the previous five tax years could be what determines whether you are a relevant UK individual entitled to relief or not.

Alternatively, you might "have relevant UK earnings chargeable to income tax" depending on what the double taxation treaty for your country of residence says. If it says that your income is to be taxed there rather than in the UK then you don't have earnings chargeable to income tax in the UK.

In addition it's unclear whether you have any UK income tax liability at all. The normal tax treaty provisions specify that income tax is due in the country of tax residence, not the country where the income is paid, though there are many details and exceptions. HMRC has a Digest of current double taxation treaties that can provide some initial guidance.

If you're a citizen of a European Economic Area country or are UK resident you have a UK personal allowance for income tax. If neither applies you probably don't unless you're working for the British government. You'll need to claim your personal allowance every year using form R43 if you're entitled to it while being non-resident in the UK.

On the much simpler question, yes, the £3,600 would reduce your income tax liability by that much so you could increase your UK income as desired.

Your place(s) of residence might completely ignore that and charge you income tax on it anyway. Depends on the specifics of the treaties that apply and their own local laws. But at least the UK part would be relatively simple.

No need to worry about me criticising being in a low tax location, I'd encourage it because this place is abut saving money and that's a useful way sometimes. I went holistic because lots of people don't appreciate that the eligibility issues can be a bit fiddly and it's nice not to let people accidentally claim tax relief they aren't entitled to, beats sorting out a mess later.