You can understand more and change your cookies preferences here. More posts from the UKPersonalFinance community, Discuss, learn and request help on how to obtain, budget, protect, save and invest your money in the UK, Press J to jump to the feed. But only £720 was actually paid as relief. So, if you are earning you can pay in upto your gross earnings *- so if you earn £12500 pa and have £12500 personal allowance, so don't pay tax, you can still put £12.5k (you put £10k and hmrc put £2.5k) into your SIPP. This is especially appealing when you consider that you are presumably a non taxpayer. It usually takes a few weeks for the provider to claim from HMRC before showing up. How much pension tax relief can I earn in 2020/21? I also do some part time work for the University ~£4k p/a (which starts to fill up my personal allowance), and I am paying some of this into a USS pension. But if … You put £15,000 into a private pension. Random Acts of Kindness and All things Positive! That means a £10,000 pension pot could effectively only cost you £6,000. But if you earn £3,600 or less, including people that don't earn any money, the maximum you can contribute is £3,600. I would suggest that it is well worth taking advantage of, and the only real negative point to be aware of is that you cannot access the Pension until you are age 55. State pension to rise by up to £229 in 2021 thanks to the triple lock guarantee. Check the key dates and tax deadlines for October 2020 to ensure you don't miss anything and incur fines. Money Compare is a trading name of Which? It is not often that the tax man gives you tax back, and it is even rarer for him to give you tax back that you have not actually paid. There is not surprisingly a limit to the amount you can contribute which is currently £3,600pa gross. Your message will be sent to one of our Accountants or Financial Planners who will respond to you within 24 hours. automatically added to your SIPP. As I understand, I will get a 20% top-up from the government, up to a maximum of £720 (so a £3600 max personal contribution). This site uses cookies. The same rule applies to anyone else who is in the same circumstances and wants to … This calculator has been updated for the 2020/21 tax year. You put £15,000 into a private pension. If you’re a non-UK taxpayer you can make contributions into your SIPP of up to £3,600 each year, including tax relief. Finally, subject to budget, you could consider both? The general rule is that you can contribute up to 100 per cent of your earnings, with tax relief applying on contributions of up to £40,000 per tax year. The Basic Rate Tax relief would be given at source which means the amount that you would personally need to contribute would be £2,880. What happens if I contribute more than the annual allowance into my SIPP? Like other pensions, one of the main advantages of a SIPP is the tax benefits you receive on your contributions. Please send me updates on the latest tax and finance issues, Capital Gains Tax On UK Property And Land, Kirk Rice offices open for client meetings, Find out about the Coronavirus Job Support Scheme. We will be updating it for Scotland soon. If you pay 40% income tax, you can claim back up to an extra 20% on your tax return. Under this system, higher and additional-rate taxpayers must complete a self-assessment tax return to receive the extra relief due to them. HMRC pays back £666.4m in overpaid pension tax: are you owed a refund? This £40,000 is called the ‘annual allowance’. Should the older generation help to pay the coronavirus bill? The amount you can pay into any pension including a SIPP and benefit from tax relief is based on your earnings and how much tax you pay. This is especially appealing when you consider that you are presumably a non taxpayer. Tax relief if you’re a non-taxpayer. Yes, it IS confusing, isn’t it? The way tax relief is claimed depends on the type of pension you are saving into, and it’s worth checking with your scheme to see what method it uses, as you might need to do some extra legwork to get the full tax relief you’re entitled to. My husband works for a large company and has a good Pension Scheme. The other main points to be aware of are that you can access the ISA at any time and the ISA Allowance means you can invest up to £15,240 for the current tax Year, which is a lot higher than you could currently invest in the Pension. I stopped work 1 year ago after having our first child. This info does not constitute financial advice, always do your own research on top to ensure it's right for your specific circumstances and remember we focus on rates not service. Contributing to a private pension explained. The government adds an extra £20 on top – what it would have taken in tax from £100 of your salary. Yes, it’s possible. When you earn tax relief on your pension, some of the money that you would have paid in tax on your earnings goes into your pension pot rather than to the government. PIA tool: https://www.pruadviser.co.uk/xpf_calculators/defined-benefit-pension-input-tool/. If I were to deposit £3600 into my SIPP, would I still get the £720 relief as I do not pay any income tax from this income? Many thanks for these replies. The bit I wasn’t sure about was what level of personal contribution I should add to my SIPP. Limited on behalf of Which? Any pension payments you make over the £40,000 limit will be subject to income tax at the highest rate you pay. If the maximum relief available to me is £720 (based on a £2880 ‘non-taxpayer level contribution) then it may not make sense for me to add any extra personal contributions above this level? Kindly complete the form below to send an enquiry. Which? I do not understand why you say you had tax relief of £720, it appears that the payment of £8,040 was made under relief at source so the net payment of £8,040 is worth £10,050 to the pension fund. Hi, I am a PhD student, and my scholarship ~£15009 is not taxable, I also have a SIPP. Pension tax relief for non-taxpayers and low earners Non-taxpayers, including spouses who aren’t in employment and children, are eligible for tax relief of 20%, even though they don’t pay tax. But if you are a higher rate taxpayer, you can claim extra tax relief through your self-assessment. However, you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years. Press question mark to learn the rest of the keyboard shortcuts, https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief. This contribution goes off to your pension pot, where HM Revenue & Customs top it up automatically with 20%. Financial Services Limited is a wholly-owned subsidiary of the Consumers’ Association (a registered charity) and is authorised and regulated by the Financial Conduct Authority (FRN527029). You automatically get tax relief at source on the full £15,000. If you’re paying into a pension through your employer, your employer will take 80% of your pension contribution from your salary (technically known as ‘net of basic rate tax relief’). This is called the pensions annual allowance. So, if you have a private pension with an insurance company, or a self-invested personal pension (Sipp), this will apply to you. There are two main ways: A ‘net pay’ arrangement is used by some workplace pensions, and don’t require you to do anything to get your full tax relief. The amount of pension tax relief you get on your pension contributions depends on the top rate of income tax you pay. Example. Are the contributions in to the USS pension going in to a defined benefit scheme, or a defined contribution (pot of money) scheme? If you have no earnings or earn less than £3,600 a year, you can still pay into a pension scheme and qualify to have tax relief added to your contributions up to a certain amount. Does a SIPP allow tax relief for non-taxpayers? Here we show you how three investors paying different Income Tax rates get tax relief on a £12,500 contribution into a SIPP or other pension: Basic-rate (20%) Higher-rate (40%) Find out how much financial advice costs, the different ways you can be charged for financial advice and how to negotiate financial adviser fees and charges. If you didn’t then you have the £3,600 gross contribution limit. Pension tax relief for non-taxpayers and low earners, Basic-rate taxpayers get 20% pension tax relief, Higher-rate taxpayers can claim 40% pension tax relief, Additional-rate taxpayers can claim 45% pension tax relief, Starter rate taxpayers pay 19% income tax but get 20% pension tax relief, Basic rate taxpayers pay 20%  income tax and get 20% pension tax relief, Intermediate rate taxpayers pay 21% income tax and can claim 21% pension tax relief, Higher-rate taxpayers pay 41% income tax and can claim 41% pension tax relief, Top rate taxpayers pay 46% income tax and can claim 46% pension tax relief. This means the actual contributions you could make would be £2,880 and HMRC would add a further £720 directly into your SIPP fund. Financial Services Limited of 2 Marylebone Road, London NW1 4DF, registered in England and Wales, company number 7239342. ‘Relief at source’ applies to all personal pensions and some workplace pensions. Personal contributions you make up to your earnings are given basic rate tax relief at 20%. Higher-rate (40%) and additional-rate (45%) taxpayers only need to pay £60 and £55 respectively to achieve the same £100 of pension savings. Separately, I also have property rental income of c. £5000 a year. Find out more in our annual allowance guide. Yes, as a non taxpayer you are allowed to invest into a Pension and one of the main benefits will be that your contribution will qualify for Basic Rate Tax Relief. I do not expect to return to work for at least 5 years and I am concerned that in the meantime I have no Pension for myself. familiarise yourself with the latest version. The government puts a limit on the amount of pension contributions on which you can earn tax relief. I guess a different way of expressing my question would be: And sorry, I see I made a mistake in my first post in the figures (which has probably confused things!). Tax relief is paid on your pension contributions at the highest rate of income tax you pay. Use the Which? By continuing to browse the site you are agreeing to our use of cookies. So, if you earned £5,000 a year, you could save £5,000 into a pension. An ISA would be a good alternative to a Pension but they do not qualify for tax relief. Use the 'Tax year' drop down to see how much you'll get from 6 April 2020. I am a PhD student, and my scholarship ~£15009 is not taxable, I also have a SIPP. If you want to stay up to date with topics like tax, investments, pensions and more, sign up to our fortnightly newsletter now. To invest £3,600 into an ISA will actually cost you £3,600. This will be changing to age 57 from 2028. Learn how fund supermarkets and investment platforms provide a one-stop shop for do-it-yourself investors. You earn £60,000 in the 2019 to 2020 tax year and pay 40% tax on £10,000. It has been set at £40,000 for the tax year 2020-21. Your maximum pensionable contribution will be based on the £4k(ish) you earn, as it is greater than the default £3600. Higher and top-rate taxpayers. Example. If you would like to receive Kirk Rice’s Financial Services Questions regularly by email, simply email info@kirkrice.co.uk stating Financial Services Questions in the subject heading and we will add you to our distribution list.