Pension contributions & personal allowance

[Midsmartin]

My wife works part time; her pay is usually at or below the income tax personal allowance.
Employer & employee pension contributions are taken from this.
My reading of the rules is that she could make an additional contribution to her pension to reach her total pay.
As her pay is below the allowance, it isn't (usually) taxed.. so I thought that she'd therefore get no tax 'repaid' in the pension. But I also know that with no income you can contribute £2880 to a SIPP and have it made up to £3600 so perhaps I'm wrong.

So is it the case that she could contribute up to her total pay and still get a nominal tax refund?
Thanks!

[JohnB]

You can get tax relief on earnings, even if you didn't pay tax on them. So if you earn £12k, you can put 4/5 of that, £9600 into a pension, and the government will add £2400 tax relief.

[ursaminortaur]

My wife works part time; her pay is usually at or below the income tax personal allowance.
Employer & employee pension contributions are taken from this.
My reading of the rules is that she could make an additional contribution to her pension to reach her total pay.
As her pay is below the allowance, it isn't (usually) taxed.. so I thought that she'd therefore get no tax 'repaid' in the pension. But I also know that with no income you can contribute £2880 to a SIPP and have it made up to £3600 so perhaps I'm wrong.

So is it the case that she could contribute up to her total pay and still get a nominal tax refund?
Thanks!

The maximum she can contribute is the amount which when grossed up (ie when it has the 20% tax relief added to it) is equal to her relevant earnings which in this case is her salary. So if she earned £12000 then the most that she and her employer can contribute is £9600.
Anybody who contributes to a pension upto the Annual allowance gets the 20% tax relief even if they have not paid any tax on the contribution (or even if they have no relevant earnings in which case they can contribute £2880 which is then grossed up by getting 20% tax relief to £3600).

[Midsmartin]

Thanks!

[DrBunsenHoneydew]

Anybody who contributes to a pension upto the Annual allowance gets the 20% tax relief even if they have not paid any tax on the contribution (or even if they have no relevant earnings in which case they can contribute £2880 which is then grossed up by getting 20% tax relief to £3600).

There's a big fuss going on at the moment about how the low-paid don't actually get their tax relief because of the way their employers operate their payroll and pension contributions system.

If your pay is less than the personal allowance (£12.5k) but above the minimum required for pension auto-enrolment (£10k) and have 5% pension contributions deducted at source you don't get the 1% tax relief (20% of the 5%) because you are paying no income tax to give the relief against.
It's a loophole that is under review by the Treasury. The Budget might bring forward a resolution.

[Alaric]

If your pay is less than the personal allowance (£12.5k) but above the minimum required for pension auto-enrolment (£10k) and have 5% pension contributions deducted at source you don't get the 1% tax relief (20% of the 5%) because you are paying no income tax to give the relief against.
It's a loophole that is under review by the Treasury. The Budget might bring forward a resolution.

It's a side effect of the policy over the last decade of increasing the personal allowance. The system of giving pensions tax relief by extending the personal allowance fails when the personal allowance exceeds the amount earned.