New maximum SIPP contribution?

I apologise for asking what must be a common Q.

I live mostly off dividends - draw about £5k/year salary only.

I have a SIPP (sippdeal.co.uk) into which I was paying £2800/year which was the maximum allowed. I believe this gets grossed up to around £3200 by the SIPP manager via a tax refund from HMRC.

What is the new maximum for 08/09?

Reply to
Postman Pat
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No change.

BTW, the grossed-up figure is 3,600 and the net figure will now be this amount less 20% (it used to be less 22% to make the payment you make 2,808 but tax rates have changed and you will now pay 2,880. In this converse world, when the tax rate goes down, pension contributions become more expensive because the rebate is less!)

Rob Graham

Reply to
Rob graham

"Rob graham" wrote

Thank you :) I will send them £2880.

Reply to
Postman Pat

That's being a little disingenuous. Pension contributions don't really become more expensive (except for people who pay tax at less than the standard rate, but are nevertheless entitled to the top-up) because the contributions are funded from the same gross earnings of £3600. The fact that you physically hand over £72 more is irrelevant. The £2808 you used to hand over was just £3600 you earned minus £792 tax which is then added back in. Now the £2880 is the same £3600 earned minus £720 tax which is again added back in. In both cases you earn £3600 which end up in the pension fund.

Reply to
Ronald Raygun

Yes, you're quite right. Maybe I was being a bit cynical

Rob

Reply to
Rob graham

I realise I didn't answer your question fully. The 3,600 is the same figure and always has been since 2000 (I think was the year) and this is the bit of the question I answered.

However, you're allowed to put in 100% of your earnings - or 3,600 if you earn less than that - so you can actually put in 5,000 gross (4,000 net).

Rob

Reply to
Rob graham

On the other hand, your general point of tax cuts sometimes having an adverse effect, does hold for transactions anchored in net payments. For example, giving to charity tends to involve a gross amount only in tax fiction. In practice a donor gives a certain net amount, and if the charity can reclaim tax, well, that's just a "free" bonus to the charity, as far as the donor is concerned.

Last year, if you gave £78 to a charity under the Gift Aid scheme, the charity could claim back 22/78 of this from the taxman and end up with £100.

This year, people aren't necessarily going to increase their net donation to £80 so that, when the charity claims back 20/80 of this from the taxman so that it gain ends up with £100 (unless they do it for reason of inflation, but then the charity still ends up with only an uninflated £100). If they just give £78 again, the charity can only claim 20/80 of this, and ends up with only £97.50.

Reply to
Ronald Raygun

"Rob graham" wrote

... or any amount more than this (you just won't get tax relief on the excess).

"Rob graham" wrote

Reply to
Tim

"Tim" wrote

Which to me seems pointless, because the whole case for putting tax-paid money into a pension fund, rather than into other more accessible investments, is the bet on one's tax rate being lower in retirement than it was when one was working.

The only other reason I can think of would be to accumulate a fund which is protected from bankrupcy! But that one is a bit far fetched because the trustee in bankrupcy can unwind contributions made out of funds that he regards as belonging to the creditors...

There is actually another reason for stashing money into a pension: you are a DNA expert and you have discovered that your DNA will enable you to live to 120 :) That would make an annuity reasonably good value :)

Reply to
Postman Pat

"Postman Pat" wrote

But you don't need to pay money into a pension, in order to buy an annuity...

Reply to
Tim

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