Carrying forward SIPP tax relief if not earning

Options
aroominyork
aroominyork Posts: 2,827 Forumite
Name Dropper First Post First Anniversary
in Savings & investments
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?

Comments

  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Name Dropper First Post First Anniversary Post of the Month
    Options
    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.
  • aroominyork
    aroominyork Posts: 2,827 Forumite
    Name Dropper First Post First Anniversary
    Options
    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.
  • MK62
    MK62 Posts: 1,449 Forumite
    First Anniversary Name Dropper First Post
    Options
    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....
  • aroominyork
    aroominyork Posts: 2,827 Forumite
    Name Dropper First Post First Anniversary
    Options
    MK62 wrote: »
    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....
    Yes, of course. Stupid of me. £3600 if £0 earnings. I knew that...
  • ChesterDog
    ChesterDog Posts: 1,112 Forumite
    First Anniversary First Post Name Dropper Photogenic
    Options
    Technically, she can contribute more than that but only claim tax relief on £3600 gross.
    I am one of the Dogs of the Index.
  • aroominyork
    aroominyork Posts: 2,827 Forumite
    Name Dropper First Post First Anniversary
    edited 17 October 2019 at 4:01PM
    Options
    ChesterDog wrote: »
    Technically, she can contribute more than that but only claim tax relief on £3600 gross.
    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.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Name Dropper First Post First Anniversary Post of the Month
    Options
    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.
    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.
  • aroominyork
    aroominyork Posts: 2,827 Forumite
    Name Dropper First Post First Anniversary
    Options
    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.
    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.
  • Tom99
    Tom99 Posts: 5,371 Forumite
    First Post First Anniversary
    edited 18 October 2019 at 6:33AM
    Options
    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.
    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.
  • ChesterDog
    ChesterDog Posts: 1,112 Forumite
    First Anniversary First Post Name Dropper Photogenic
    Options
    Tom99 wrote: »
    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.
This discussion has been closed.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.3K Banking & Borrowing
  • 250.1K Reduce Debt & Boost Income
  • 449.7K Spending & Discounts
  • 235.3K Work, Benefits & Business
  • 608.1K Mortgages, Homes & Bills
  • 173.1K Life & Family
  • 248K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards