Dod101 wrote:absolutezero wrote:GrahamPlatt wrote:Novice question, but I’m perplexed. The rules are that someone can put 100% of their annual income into a SIPP.
Imagine that’s £25k. The SIPP is then automatically “topped up” by 20%. What, on all of it? Because they’ve only been taxed on £25k-personal allowance; circa £25k-£11k = £14k, i.e. £2.8k tax paid…
perhaps best asked in pensions practical problems, but this thread came up on a search.
My understanding is yes. (That's what happened on my tax returns anyway)
If you have no earnings at all you can pay in (I think £2,800) and get the 20% relief on that despite having paid no tax.
You will only get the tax credit up to age 75. Under that age though you can pay in £2,800 and get the 20% tax added, so an additional £700. (an equivalent £3,500 gross)
You pay in £2880, and it gets made up to £3600 gross. However if your ultimate drawdown is taxed at the basic rate then you only benefit by the tax saved on the 25% tax-free part, so 20% of £900 = £180.
Still worth doing for a few minutes admin per year though.
Scott.