Pension tax relief - what counts as income

[ArunC]

Hi all,
I have been looking to get clarity on this, but what counts as income to qualify for pension tax relief? If I have retired, can I use part of ISA income to pay into a SIPP to get the pension tax relief on that contribution, or does tax free SIPP income not count towards the pension tax relief allowance?
Cheers
Nick

[kempiejon]

I'm pretty sure other than some peculiar circumstances any cash extracted from ISAs, SIPPs, investments, interest, pensions or capital gains would not be counted as income.
Working wages are income. However as a non-incomed under 75 year old one has an allowance. Those with no UK earnings at all can make contributions up to £3,600 a year including tax relief, so you would put in £2,880 and HM Revenue & Customs (HMRC) would add a further £720 directly into the SIPP.

https://www.gov.uk/tax-on-your-private- ... tax-relief

[Laughton]

I'm not an accountant nor a pension expert but I'm sure that when I checked for myself I was told that the thing to bear in mind is the difference between "earnings" and "income".

Tax relief on pension contributions is based on earnings and earnings are what you receive for working, not from investments or savings interest or money you have stuffed down the back of the sofa for eample.

But as kempiejon has said, you do get tax relief on the first £3,600 of contributions irrespective of your earnings.

[Alaric]

Hi all,
If I have retired, can I use part of ISA income to pay into a SIPP to get the pension tax relief on that contribution, or does tax free SIPP income not count towards the pension tax relief allowance?

You can put in £ 2880 regardless which is grossed up to £ 3600. Beyond that income has to be "earned". I think you have to be under 75 as well.

[ArunC]

Thanks everyone, makes sense, although I have never seen explicit HMRC guidance on it - guess it is down to the definition of earnings and income which is clear to HMRC

[Laughton]

Here you go:-

Meaning of ‘earnings’

https://www.gov.uk/hmrc-internal-manual ... l/eim00520

[ursaminortaur]

Here you go:-

Meaning of ‘earnings’

https://www.gov.uk/hmrc-internal-manual ... l/eim00520

For contributions to a pension to receive tax relief they must be "relevant earnings"

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

For most people the amount of tax relief they can have on their pension contributions is limited to 100% of their relevant UK earnings that are chargeable to income tax for the tax year (there is another low limit for some - see Annual limits above). If relief is sought within the 100% limit an individual may want to establish how the various payments received as part of earnings have been taxed, to see what counts for this limit. The following earnings are examples of relevant UK earnings.

Relevant UK earnings means any one or more of the following types of income:

* employment income, such as: pay, wages, bonus, overtime, or commission - but only if taxable under Section 7(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) - so including:

* the part of a redundancy payment above the £30,000 tax exempt threshold in section 403(1) ITEPA 2003. The first £30,000 of the redundancy payment is not classed as employment income so does not count here. But any amount on top of the £30,000 threshold is classed as employment income and so it is also relevant UK earnings. In making this analysis, care is required not to confuse usual wages or pay, pay in lieu of notice or holiday pay, with the redundancy payment when such elements are bundled into a final payment.
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For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings.