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  • FIRST POST
    • boxwood
    • By boxwood 11th Oct 18, 5:00 PM
    • 21Posts
    • 6Thanks
    boxwood
    Can I start a SIPP?
    • #1
    • 11th Oct 18, 5:00 PM
    Can I start a SIPP? 11th Oct 18 at 5:00 PM
    The pension advice service says "If youíre not earning enough to pay Income Tax, youíll still qualify to have tax relief added to your contributions up to a certain amount. The maximum you can pay is £2,880 a year. Tax relief is added to your contribution so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme"

    That sounds like me. So can I just open a SIPP with an online platform and I can pay in up to £2,880?

    How do I get the extra £720 paid in? Does it get paid into the SIPP as cash by HMRC (and I then choose how to invest it) or does it happen another way?

    When does the £720 get paid? Do I have to fill in forms or a tax return and claim it? Does it happen at the end of the tax year? Or is it paid as soon as I make my own payment?

    I was looking at A J Bell as they have no set up fee and then 0.25% custody charge and £9.95 per deal for a fund. I will only make one fund buy a year so on the first £3,600 that will total £18.95 whch is 0.53%. I will then buy a low cost VanguardLifeStyle fund which has low fees and seems to be a good "save and forget" option for a no fuss approach.
Page 2
    • ColdIron
    • By ColdIron 12th Oct 18, 1:12 PM
    • 4,729 Posts
    • 6,195 Thanks
    ColdIron
    Yes it's right. Watch out for exit fees, different platforms will have different rules. Since you can do this every year until you are 75 you probably won't want to close the account
    • AnotherJoe
    • By AnotherJoe 12th Oct 18, 1:17 PM
    • 11,032 Posts
    • 12,711 Thanks
    AnotherJoe
    The Pensions Advice Service says

    If you do not pay Income Tax

    You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:
    • you do not pay Income Tax, for example because youíre on a low income
    • your pension provider claims tax relief for you at a rate of 20% (relief at source)
    https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief


    I was going to ask a question about this very subject today.

    My only income is disability benefits, so well below the Personal Allowance.
    As I'm over 55, it looks to me as if I can pay the £2880 into a SIPP, get the tax relief and then withdraw it, with the only cost to me being the management fees.


    Surely that can't be right? If it is, it's the only light in an increasingly grim financial tunnel
    Originally posted by Stoodles

    That is right.
    The usual advice here, given fees for closure, is to do as follows.
    Year one, put in £2880 to HL* SIPP. It gets bumped up to £3600 about 6 weeks later, at that point, take out £2600, leaving £1k so the account isn't closed with fees to pay.
    Year two, put in £2880, it gets bumped up to £3600, take out the full £3600.
    Continue until age 75 when you can take out the last £1k.


    * because there is no fee for running an Hargreaves Lansdown SIPP with just cash in it.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Stoodles
    • By Stoodles 12th Oct 18, 1:27 PM
    • 714 Posts
    • 9,013 Thanks
    Stoodles
    I'm (pleasantly) shocked. Is this a loophole likely to be closed in the Budget, so that I should rush to do it?
    • AnotherJoe
    • By AnotherJoe 12th Oct 18, 1:41 PM
    • 11,032 Posts
    • 12,711 Thanks
    AnotherJoe
    I'm (pleasantly) shocked. Is this a loophole likely to be closed in the Budget, so that I should rush to do it?
    Originally posted by Stoodles
    I very much doubt it. Two reasons. One, the government wants to encourage people to save for pensions, and two, any cutback will start at the high rate taxpayers, imagine the howls of protest if they closed off a benefit to nonntaxpayers and let 40% taxpayers carry on getting relief. PLus realistically few non taxpayers take advantage of this, so it would be a double political foot in mouth, horrendous headlines & very little revenue raised.

    Having said there's no rush, doing it soon would be a good idea so that you can comfortably get your first amount in, in this tax year, and then its not long til next tax year, so your £2880 wouldnt be locked away for too long. Realistically if you start the ball rolling now and I cant recall what paperwork is needed it will be end of the year earliest before you see the £3600 in your new SIPP and thats only three months before you can put the new tranche in, in the next tax year.
    Last edited by AnotherJoe; 12-10-2018 at 1:44 PM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • ColdIron
    • By ColdIron 12th Oct 18, 1:48 PM
    • 4,729 Posts
    • 6,195 Thanks
    ColdIron
    You need to be careful with withdrawals to avoid paying unnecessary tax. You can take 25% tax free but HL, and most other places, tax withdrawals on the other 75% based on 1/12th of the personal allowance. If you exceed £987.50 (£11,850 / 12) each month the excess will be taxed at 20%. You can reclaim this from HMRC but to avoid all the faff stay below the limit. One way would be to take £900 tax free and move the other £2,700 into drawdown. If you leave £1,000 in the account for the first year you can take the remaining £1,700 in 12 monthly payments of £141.66 (assuming you have a full year available). Next year you can increase this to £225
    • xylophone
    • By xylophone 12th Oct 18, 1:55 PM
    • 26,901 Posts
    • 16,053 Thanks
    xylophone
    If you do not pay Income Tax
    As explained above, it is not a case of whether a person pays income tax but of tax relief if he has no relevant earnings or relevant earnings of or less than £3,600 a year.

    For example, let's suppose that Jim is under age 75 and his only income is relevant earnings of £10,000 a year so that he does not pay tax. This would not confine him to a net contribution of £2880 to his personal pension.


    He could contribute up to £8000 per tax year to his PP and receive tax relief of up to £2000.

    If Jim had no relevant earnings or relevant earnings at or under £3,600 per tax year, then he would be confined to a contribution of up to £2880 per tax year to his PP and tax relief of up to £720.

    See post 14 here for example (except for £3660 read £3,600).

    https://forums.moneysavingexpert.com/showthread.php?t=5580163
    • boxwood
    • By boxwood 12th Oct 18, 4:21 PM
    • 21 Posts
    • 6 Thanks
    boxwood
    This is amazing if true.

    So for Class 1 NI the Lower Earnings Limit is £6,032 so if you earn this or more you qualify to receive NI counting as a Qualifying Year towards State Pension but NI it is not actually deducted from my salary and the company doesn't pay NI either no employers NI or employees NI? No-one pays any NI but I still get a Qualifying Year?

    I can earn up to the Primary Threshold of £8,424 and receive NI without without any NI actually being paid?

    If neither I or the company pays, is it the Government that pays my contributions?

    If I had no other income then there is no income tax on this? Would I need to do a tax return or Self Assessment? I have never done one of those.

    When I was earning nothing and had no salary and I wanted to have Qualifying Years for my State Pension I have paid hundreds of pounds for some years! But when you do have some earnings you don't have to pay anything? Why?
    Last edited by boxwood; 12-10-2018 at 4:27 PM.
    • zagfles
    • By zagfles 12th Oct 18, 6:40 PM
    • 13,458 Posts
    • 11,422 Thanks
    zagfles
    This is amazing if true.

    So for Class 1 NI the Lower Earnings Limit is £6,032 so if you earn this or more you qualify to receive NI counting as a Qualifying Year towards State Pension but NI it is not actually deducted from my salary and the company doesn't pay NI either no employers NI or employees NI? No-one pays any NI but I still get a Qualifying Year?

    I can earn up to the Primary Threshold of £8,424 and receive NI without without any NI actually being paid?

    If neither I or the company pays, is it the Government that pays my contributions?

    If I had no other income then there is no income tax on this? Would I need to do a tax return or Self Assessment? I have never done one of those.

    When I was earning nothing and had no salary and I wanted to have Qualifying Years for my State Pension I have paid hundreds of pounds for some years! But when you do have some earnings you don't have to pay anything? Why?
    Originally posted by boxwood
    It's historic meddling in the way it works. When I first started work, once you passed the LEL you paid NI on all your earnings, which would have a negative effect on your pay if you went from just under the LEL to just over. So a payrise could mean you'd have less take home. But you got the benefits of NI credits.

    But this was considered "unfair", so they changed it so you only paid NI on earnings above the LEL.

    Then the govt decided to align the LEL with the slightly higher income tax personal allowance to make things "simpler", but this was again considered "unfair" because some people who previously got credits now wouldn't, so they decided to separate the LEL from the threshold at which NI starts becoming payable. Creating this band where you pay no NI but do get credits.

    NI is full of unfair anomilies, such as this, such as people who work part of the year can pay NI but not get credits, such as lumpy earnings can mean less NI etc.
    • boxwood
    • By boxwood 12th Oct 18, 7:18 PM
    • 21 Posts
    • 6 Thanks
    boxwood
    It's historic meddling in the way it works. When I first started work, once you passed the LEL you paid NI on all your earnings, which would have a negative effect on your pay if you went from just under the LEL to just over. So a payrise could mean you'd have less take home. But you got the benefits of NI credits.

    But this was considered "unfair", so they changed it so you only paid NI on earnings above the LEL.

    Then the govt decided to align the LEL with the slightly higher income tax personal allowance to make things "simpler", but this was again considered "unfair" because some people who previously got credits now wouldn't, so they decided to separate the LEL from the threshold at which NI starts becoming payable. Creating this band where you pay no NI but do get credits.

    NI is full of unfair anomilies, such as this, such as people who work part of the year can pay NI but not get credits, such as lumpy earnings can mean less NI etc.
    Originally posted by zagfles
    I can do some paid work for the company. If I am able to earn about £7,200 p.a. (so between the Lower Earnings Limit £6,032 up to the Primary Threshold of £8,424 p.a.) would the company have be giving me regular employment throughout the year with wages paid monthy 12 x £600, or if I only worked for 6 months and was paid 6 x £1,200, or 3 months 3 x £1,800 etc. Does salary income have to be regular and not "occassional projects" to count towards NI and Qualfying Years for State Pension and other benefits?

    Would I need a Contract of Employment? Does it matter if you are working for a spouse's company?

    Would I need to start doing a tax return (I would have no other income)?
    Last edited by boxwood; 12-10-2018 at 7:21 PM.
    • zagfles
    • By zagfles 12th Oct 18, 9:51 PM
    • 13,458 Posts
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    zagfles
    I can do some paid work for the company. If I am able to earn about £7,200 p.a. (so between the Lower Earnings Limit £6,032 up to the Primary Threshold of £8,424 p.a.) would the company have be giving me regular employment throughout the year with wages paid monthy 12 x £600, or if I only worked for 6 months and was paid 6 x £1,200, or 3 months 3 x £1,800 etc. Does salary income have to be regular and not "occassional projects" to count towards NI and Qualfying Years for State Pension and other benefits?
    Originally posted by boxwood
    NI works on a pay period basis, so you need to be careful. For instance any income above the UEL won't count towards the total you need. So if you get paid monthly and earned £7000 all in one month, it would not be a qualifying year for the state pension because only £3863 would count and you need £6032.
    Would I need a Contract of Employment? Does it matter if you are working for a spouse's company?

    Would I need to start doing a tax return (I would have no other income)?
    You shouldn't need to do a tax return as an employee. Not sure about contracts etc. Does your husband have an accountant - something to discuss with them.
    • boxwood
    • By boxwood 13th Oct 18, 7:10 AM
    • 21 Posts
    • 6 Thanks
    boxwood
    Thank you.

    "NI works on a pay period basis, so you need to be careful. For instance any income above the UEL won't count towards the total you need. So if you get paid monthly and earned £7000 all in one month, it would not be a qualifying year for the state pension because only £3863 would count and you need £6032."

    I would not earn £7,000 in one month, but I would still like to understand the principle as I may have to do occassional work rather than regular. What is UEL? If my work was 2 or 3 projects a year, paid ad hoc, is there a range I should keep the pay/fee between for the months when I earn so that I make sure I get the NI and the year will count towards State Pension?
    • zagfles
    • By zagfles 13th Oct 18, 9:57 AM
    • 13,458 Posts
    • 11,422 Thanks
    zagfles
    Thank you.

    "NI works on a pay period basis, so you need to be careful. For instance any income above the UEL won't count towards the total you need. So if you get paid monthly and earned £7000 all in one month, it would not be a qualifying year for the state pension because only £3863 would count and you need £6032."

    I would not earn £7,000 in one month, but I would still like to understand the principle as I may have to do occassional work rather than regular. What is UEL? If my work was 2 or 3 projects a year, paid ad hoc, is there a range I should keep the pay/fee between for the months when I earn so that I make sure I get the NI and the year will count towards State Pension?
    Originally posted by boxwood
    See link in post #19, UEL is Upper Earnings Limit.
    Basically, for a qualifying year you need to earn at least 52x the weekly LEL ie £6032 - however any earnings in any pay period above the UEL do not count, also any pay period where you earn below the LEL does not count.

    So for instance with monthly pay, £7000 in one month would not make a qualifying year (since only £3863 would count).

    Also £500 a month for 6 months and £1000 a month for the other 6 months would not make a qualifying year either, since none of the £500 months would count as below the LEL, only 6x£1000 which is less than £6032.
    • boxwood
    • By boxwood 13th Oct 18, 3:29 PM
    • 21 Posts
    • 6 Thanks
    boxwood
    Thanks again zagfles, you have been very helpful.

    I have read the link and your explanation, and I think I understand.

    So to get a Qualifying Year for State Pension, and get the NI conttibution without actually having to pay it, my salary must fall between the Lower Earnings Limit (LEL) and the Primary Threshold (PT) on a pro rata monthly or weekly basis, i.e. a total income for the year between £6,032 and £8,424 is not the overall criteria. What matters is that if my salary is paid monthly, it must be between £503 and £702 per month. Is this the point?

    As there is only 5 full months (or 6 including this month) remaining in this financial year, does this mean I cannot work the remaining months between now and April and earn enough to get my NI and a Qualifying Year without having to pay it? I would have to be paid more than the monthly Primary Threshold to earn enough to get beyond the annual Lower Earnings Limit.
    Last edited by boxwood; 14-10-2018 at 7:22 PM.
    • xylophone
    • By xylophone 13th Oct 18, 3:49 PM
    • 26,901 Posts
    • 16,053 Thanks
    xylophone
    The HMRC site used to say the same!
    It doesn't now...

    https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm024200

    Members of registered pension schemes can make unlimited contributions to those schemes in a tax year but there is a limit on the amount of contributions that will receive tax relief based on:

    the greater of £3,600 and the amount of the member’s relevant UK earnings, and the annual allowance.


    But the Gov site still muddies the waters....

    https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

    If you do not pay Income Tax

    You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

    you do not pay Income Tax, for example because you’re on a low income
    your pension provider claims tax relief for you at a rate of 20% (relief at source)
    • boxwood
    • By boxwood 14th Oct 18, 7:21 PM
    • 21 Posts
    • 6 Thanks
    boxwood
    Am I too late this year to have a Qualifying Year for State Pension in the income band that means I don't have to pay NI?

    To get a Qualifying Year for State Pension (and get the NI conttibution without actually having to pay it) my salary must fall between the Lower Earnings Limit (LEL) and the Primary Threshold (PT) on a pro rata monthly or weekly basis, i.e. a total income for the year between £6,032 and £8,424 is not the overall criteria. What matters is that if my salary is paid monthly, it must be between £503 and £702 per month. Is this the point?

    As there is only 5 full months (or 6 including this month) remaining in this financial year, does this mean I cannot work the remaining months between now and April and earn enough to get my NI and a Qualifying Year without having to pay it? I would have to be paid more than the monthly Primary Threshold to earn enough to get beyond the annual Lower Earnings Limit.
    • crv1963
    • By crv1963 14th Oct 18, 7:32 PM
    • 481 Posts
    • 1,054 Thanks
    crv1963
    Before you go paying NI double check that you are not already being credited for them by virtue of your disability benefits?
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • boxwood
    • By boxwood 14th Oct 18, 9:03 PM
    • 21 Posts
    • 6 Thanks
    boxwood
    I don't claim any benefits. That was another member with a question on this thrsad.
    • crv1963
    • By crv1963 15th Oct 18, 7:24 AM
    • 481 Posts
    • 1,054 Thanks
    crv1963
    I don't claim any benefits. That was another member with a question on this thrsad.
    Originally posted by boxwood
    Apologies.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • boxwood
    • By boxwood 15th Oct 18, 12:08 PM
    • 21 Posts
    • 6 Thanks
    boxwood
    No problem.

    My question again:

    Am I too late this year to have a Qualifying Year for State Pension in the income band that means I don't have to pay NI?

    To get a Qualifying Year for State Pension (and get the NI conttibution without actually having to pay it) my salary must fall between the Lower Earnings Limit (LEL) and the Primary Threshold (PT) on a pro rata monthly or weekly basis, i.e. a total income for the year between £6,032 and £8,424 is not the overall criteria. What matters is that if my salary is paid monthly, it must be between £503 and £702 per month. Is this the point?

    As there is only 5 full months (or 6 including this month) remaining in this financial year, does this mean I cannot work the remaining months between now and April and earn enough to get my NI and a Qualifying Year without having to pay it? I would have to be paid more than the monthly Primary Threshold to earn enough to get beyond the annual Lower Earnings Limit.
    • zagfles
    • By zagfles 15th Oct 18, 7:20 PM
    • 13,458 Posts
    • 11,422 Thanks
    zagfles
    You might be able to claim to be annually paid but you really need to talk to your accountant - I posted the rules for ordinary employees but I think there are rules about directors (and possibly spouses of directors) to stop manipulation of salary to minimise NI.
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