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SIPP allowance amount

1nvest
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SIPP allowance amount

#417695

Postby 1nvest » June 6th, 2021, 3:00 pm

Personal tax allowance is £12,570. If about to retire at age 60 with a £12,600 occupational pension i.e. marginally over the PA amount so some (only) income is in part taxed, how much can be invested into a SIPP each year assuming no other sources of income? i.e. actual spending is sourced out of capital gains. Could all £12,600/year be added £10,080 paid in, £2520 added to that by the treasury) into SIPP or is it a case of just the minimum level £2400/year paid in, £600 added by the treasury) SIPP allowance case?

mc2fool
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Re: SIPP allowance amount

#417702

Postby mc2fool » June 6th, 2021, 3:30 pm

1nvest wrote:Personal tax allowance is £12,570. If about to retire at age 60 with a £12,600 occupational pension i.e. marginally over the PA amount so some (only) income is in part taxed, how much can be invested into a SIPP each year assuming no other sources of income? i.e. actual spending is sourced out of capital gains. Could all £12,600/year be added £10,080 paid in, £2520 added to that by the treasury) into SIPP or is it a case of just the minimum level £2400/year paid in, £600 added by the treasury) SIPP allowance case?

Pensions don't count as "earnings" so you'll only be allowed to put the de minimis amount of £3,600 gross into your SIPP each year.

That's £2,880 you put in plus £720 added by HMRC. That gross up to 20% is regardless of your actual tax band.

Kantwebefriends
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Re: SIPP allowance amount

#417749

Postby Kantwebefriends » June 6th, 2021, 8:16 pm

If you find £3,600 gross restrictive consider making contributions for your wife.

1nvest
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Re: SIPP allowance amount

#417790

Postby 1nvest » June 7th, 2021, 12:02 am

Thanks.

Ifnotnow8
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Re: SIPP allowance amount

#417856

Postby Ifnotnow8 » June 7th, 2021, 10:35 am

A retired friend has recently started working on an ad hoc basis. She is aware that as a pensioner, she was allowed to contribute £3600 gross (£2880 net) for 2020/2021. Her earnings for 2021/2022 will be around £3000.

How much is she allowed to contribute gross and net amounts into her Sipp for 2021/2022?

Thanks.

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Re: SIPP allowance amount

#417863

Postby Alaric » June 7th, 2021, 10:48 am

Ifnotnow8 wrote:How much is she allowed to contribute gross and net amounts into her Sipp for 2021/2022?


It's always allowed to contribute £ 3,600 gross/ £ 2880 net. Aside from that minimum, a maximum is 100% of pensionable earnings.

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Re: SIPP allowance amount

#418070

Postby Ifnotnow8 » June 8th, 2021, 10:30 am

Am I right (or completely wrong) in understanding that my friend can contribute £3000 (earnings) plus the £2880 net (minumum allowed for those under 75 yrs)?
Thanks.

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Re: SIPP allowance amount

#418074

Postby swill453 » June 8th, 2021, 10:39 am

Ifnotnow8 wrote:Am I right (or completely wrong) in understanding that my friend can contribute £3000 (earnings) plus the £2880 net (minumum allowed for those under 75 yrs)?
Thanks.

Wrong. If earnings are less than £3600 then the £3600 (gross) is all that can be contributed.

Scott.

pochisoldi
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Re: SIPP allowance amount

#418081

Postby pochisoldi » June 8th, 2021, 11:20 am

Ifnotnow8 wrote:Am I right (or completely wrong) in understanding that my friend can contribute £3000 (earnings) plus the £2880 net (minumum allowed for those under 75 yrs)?
Thanks.


Don't confuse "gross" and "net". Do that and you run the risk of either busting limits or not making the most of what's allowable.

The maximum gross contribution is the higher of £3600 or 100% of gross earnings.
Always work out what the gross limit is, then knock off 20% to arrive at the maximum net contribution.

(Note that the 20% tax relief claimed by the pension provider is always paid into your pot, even if you weren't liable for tax any way - it isn't like gift aid, where tax has to be paid so the charity can reclaim)

Pochisoldi

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Re: SIPP allowance amount

#418091

Postby Watis » June 8th, 2021, 11:41 am

Am I correct in my understanding that the £3,600 gross contribution can be made even after the pension has moved into drawdown?

TIA,

Watis

swill453
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Re: SIPP allowance amount

#418092

Postby swill453 » June 8th, 2021, 11:46 am

Watis wrote:Am I correct in my understanding that the £3,600 gross contribution can be made even after the pension has moved into drawdown?

Yes, I've been doing that for the last 5 years since I started drawing down.

Scott.

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Re: SIPP allowance amount

#418193

Postby richydicky » June 8th, 2021, 6:00 pm

The maximum gross contribution is the higher of £3600 or 100% of gross earnings.


I have earnings from self employment which can be variable especially over the last year with the pandemic.
1) Does the amount you can contribute relate to the previous year's income?
2) For self employment is gross earnings profit?

I have been taking drawdown for a while but have just turned the tap off as my State pension kicked in at the end of last year and I'd rather add and accumulate my Sipp.

Thanks.

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Re: SIPP allowance amount

#418347

Postby DrBunsenHoneydew » June 9th, 2021, 11:53 am

richydicky wrote:
The maximum gross contribution is the higher of £3600 or 100% of gross earnings.


I have earnings from self employment which can be variable especially over the last year with the pandemic.
1) Does the amount you can contribute relate to the previous year's income?
2) For self employment is gross earnings profit?

I have been taking drawdown for a while but have just turned the tap off as my State pension kicked in at the end of last year and I'd rather add and accumulate my Sipp.

Thanks.

The maximum allowance goes by the current year, not the previous.
If you’re a sole trader, this will be the profit before tax which you declare to HMRC in the current tax year.
If you work for your own limited company, this will be any salary you are paid, plus any taxable benefits, before tax. As the owner of a limited company, it’s possible for your business to make employer contributions to your pension, which are not limited by your personal earnings.

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Re: SIPP allowance amount

#418355

Postby CautiousPaul » June 9th, 2021, 12:10 pm

I now get the full state pension and have started drawing down a little money each year from defined contribution pension pots to use up the remainder of my personal allowance. Any needs above that are being funded by savings I have that aren't in pensions or ISAs.

As I understand it I may as well contribute £2880 each year to my SIPP as this will magically increase to £3600 with the extra being added by the taxman. Obviously, I'll have to pay tax when I eventually withdraw that money. Assuming no growth, no LTA issues and the basic rate of tax it seems like a gift of £180 per year from the taxman. Have I got this right ? Thanks in advance.

My calculations to get £180
2880 net goes in
3600 gross after tax relief
900 out as 25% tax free
2700 out but taxable
540 tax
3060 net amount (3600 - 540)
180 profit (3060 - 2880)

swill453
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Re: SIPP allowance amount

#418358

Postby swill453 » June 9th, 2021, 12:15 pm

CautiousPaul wrote: it seems like a gift of £180 per year from the taxman. Have I got this right ?

Yes.

Scott.

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Re: SIPP allowance amount

#418380

Postby ursaminortaur » June 9th, 2021, 1:08 pm

DrBunsenHoneydew wrote:
richydicky wrote:
The maximum gross contribution is the higher of £3600 or 100% of gross earnings.


I have earnings from self employment which can be variable especially over the last year with the pandemic.
1) Does the amount you can contribute relate to the previous year's income?
2) For self employment is gross earnings profit?

I have been taking drawdown for a while but have just turned the tap off as my State pension kicked in at the end of last year and I'd rather add and accumulate my Sipp.

Thanks.

The maximum allowance goes by the current year, not the previous.
If you’re a sole trader, this will be the profit before tax which you declare to HMRC in the current tax year.
If you work for your own limited company, this will be any salary you are paid, plus any taxable benefits, before tax. As the owner of a limited company, it’s possible for your business to make employer contributions to your pension, which are not limited by your personal earnings.


If you have taken more than the tax free lump sum from a pension in drawdown then your future contributions to any DC pension including Sipps will be limited to the MPAA ie the most you will be able to contribute is £4000 gross.

https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

And you can't get around it with employer contributions

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/pension-contributions-the-basics/

Employer contributions count towards the annual allowance, MPAA and the tapered annual allowance.
.
.
.
Employer contributions over the annual allowance may also be subject to the annual allowance or MPAA charge, payable by the individual. Carry forward can also be used here to avoid the annual allowance charge but not the MPAA charge.


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