Max contribution into a SIPP?

There is a salary link.You can put in 100% of salary (but not divis).

Rob Graham

"Rob graham" wrote

You can put in more, can't you? - Just you won't get tax relief on the excess...

Yes, that's right, you can.

Rob

dividend,

One thing I can't get my head around is what happens if, say, you earn

30,000 salary and 2,000 in interest, and you contribute 23,400 (net) to a SIPP (ie 30,000 gross).

Now, AIUI you get basic rate tax relief on the entire 30,000 even though some of it will not have been taxed (allowance) and some have been taxed at 10%.

So what happens with the 2000 interest? Can you reclaim the tax paid on that interest, or not?

Logically you should be able to, since the 2000 is your only taxable income (since you've contributed your entire salary to the SIPP). But the way HMRC handle pension contributions is to increase your basic rate band by the gross amount of the contribution, rather than knocking the pension contribution off your taxable income. So this would not give you tax back on your interest.

Contributions (other than direct from your employer) are deemed to come from monies which have been subject to income tax at the basic rate, and that basic rate tax is automatically claimed back from HMRC by the pension company to augment your fund. You seem to be bringing in the mechanism for reclaiming higher-rate tax via the tax return, which is done by increasing the starting point of the higher rate band for you.

Matti

taxable

Because that, AIUI, is the only mechanism. The HMRC don't AIUI reduce the income subject to tax by the contribution. That would seem to imply the 2000 interest will be subject to 20% tax. Is this true?

It will be subject to income tax, certainly. Depending on its source it's probably had basic rate tax deducted before you received it.

Matti

"Matti Lamprhey" wrote in message news: snipped-for-privacy@mid.individual.net...

source

OK, that makes sense thinking about it.

Next question, what about gift aid? If the same person gives 1000 (gross) under gift aid, would he still be able to contribute 100% of salary to a pension? Would he need to revoke his gift aid declarations, as his tax relief on the penion more than cancels out the tax he has paid?

Yes.

I believe so, as a condition of gift aid is that basic rate tax has been paid on the corresponding amount of income.

Matti

"Matti Lamprhey" wrote in message news: snipped-for-privacy@mid.individual.net...

Which, on his tax return, it would have been since the pension contribution is not deducted from gross pay, as discussed. So his tax calcuation will show him paying basic rate tax, which is why he will be liable to 20% tax on savings as discussed. Using that same logic, would he not also be eligible to make gift aid declarations?

Agreed. I believe this is because the pension stuff is considered first.

No, you do not need to "revoke" your GA declarations. You simply need to have paid at least as much income tax as the charity claims from HMRC. If you haven't, pre-paid it, you must post-pay it.

I gather that tax credits in dividend income do count as "tax paid" for GA purposes.

Right - but is the tax relief on the SIPP subtracted from the income tax paid on the tax return?