Getting tax relief with income under tax allowance

[JohnB]

I worked a part year, and paid £20k into a SIPP via salary sacrifice, and earned £10k, and so pay no tax because I'm under my personal allowance. Can I pay £8k more into my SIPP and get £2k tax relief at source added by my provider, *even though I never paid that tax*
All the guidance either talks about "relief at the highest rate of tax you pay", or quotes the £2880 > £3600 rule if you earn nothing at all.

[swill453]

Yes, your £10K is "pensionable earnings" so you get tax relief, despite not having paid tax.

Scott.

[JohnB]

The definitive finance act http://www.legislation.gov.uk/ukpga/2004/12/section/190 shows the smooth transition between £3600 if earning nothing, and X if X>3600

So if you earn £35k and put £28k in a pension, the government adds £7k even though you only paid 20% on £25k, ie £5k

If you earn £10k and put £8k in a pension, the government adds £2k even though you paid no tax at all.

[Alaric]

If you earn £10k and put £8k in a pension, the government adds £2k even though you paid no tax at all.

There is another method used, which works badly for the low paid. It's an old scheme called "net pay" or similar. It's usually found operated by employers who offer a traditional occupational pension scheme. Suppose you earn £ 20,000 and are expected to put 5% into the scheme. You are taxed as if you only earned £19,000. That works well if you are a tax payer, particularly if on the cusp between two rates of tax. Where it fails is if you earn £10,000 a year and are still expected to pay 5%. You are taxed as if you earned £ 9,500 giving a tax saving of £ nil.

[gadgetmind]

There is another method used, which works badly for the low paid. It's an old scheme called "net pay" or similar. It's usually found operated by employers who offer a traditional occupational pension scheme.

My wife would seem to fall into this with AVCs in her Local Government Pension. The pension itself is excellent value but her paying AVSs from gross pay would be pointless as she doesn't earn enough to pay tax. Instead she puts her entire taxable income into a SIPP, £2880/£3600 via 12 monthly payments, and then a top up in late March for the rest. HMRC then chip in 25% on top of what she pays in, which is nice as she can extract her entire SIPP tax free between the ages of 55 and 67.

She knows people at work in the same position who go the AVC route as they don't understand/trust/whatever private pensions.