What counts as income to allow pension contributions?
Discussion
I’m in my early 60s now and am potentially going to be offered ‘a package’ to leave the company after 40 something years.
My question is, how much of this would I potentially be able to ‘uplift’ by paying in to my pension? I understand that the limit is 40K a year, and unused amounts can be included from the past three years, but a critical point seems to be that any contribution in total can’t exceed the current year’s income.
So, assuming this refers to tax years, someone being made redundant at the end of a tax year would be much better off than someone a month later as they could instantly turn 60K into 100K? Or does the taxed part of the redundancy payment count as income for these purposes anyway? What about any other taxed income (property rent etc.)?
It doesn’t seem all that likely to me that an employee and the company could potentially do a deal on payment timing so both would be better off, but maybe this is indeed the case?
My question is, how much of this would I potentially be able to ‘uplift’ by paying in to my pension? I understand that the limit is 40K a year, and unused amounts can be included from the past three years, but a critical point seems to be that any contribution in total can’t exceed the current year’s income.
So, assuming this refers to tax years, someone being made redundant at the end of a tax year would be much better off than someone a month later as they could instantly turn 60K into 100K? Or does the taxed part of the redundancy payment count as income for these purposes anyway? What about any other taxed income (property rent etc.)?
It doesn’t seem all that likely to me that an employee and the company could potentially do a deal on payment timing so both would be better off, but maybe this is indeed the case?
Relevant income for pension purposes is "any income on which you have paid income tax". So yes, both rental income and your redundancy payments will count.
It becomes easier to work out if you reduce it to - payments into pension schemes will reduce your taxable income for that year. But they won't reduce it to less than zero.
It becomes easier to work out if you reduce it to - payments into pension schemes will reduce your taxable income for that year. But they won't reduce it to less than zero.
Relevant earnings and how they are linked to pensions - As the first £30k of redundancy is non taxable, it can't be taken into account when assessing carry forward - only the portion above £30k
Not all types of property income are relevant - holiday letting income is, but ordinary rental income is not. Dividend income is also not relevant earnings.
Example might be if your salary is £40k, and your redundancy payment is £60k - your relevant earnings for that tax year will be £70k (as £30k of the redundancy payment is not relevant earnings)
https://www.moneyhelper.org.uk/en/pensions-and-ret...
https://www.moneyhelper.org.uk/en/work/losing-your...
https://www.moneyhelper.org.uk/en/pensions-and-ret...
Not all types of property income are relevant - holiday letting income is, but ordinary rental income is not. Dividend income is also not relevant earnings.
Example might be if your salary is £40k, and your redundancy payment is £60k - your relevant earnings for that tax year will be £70k (as £30k of the redundancy payment is not relevant earnings)
https://www.moneyhelper.org.uk/en/pensions-and-ret...
https://www.moneyhelper.org.uk/en/work/losing-your...
https://www.moneyhelper.org.uk/en/pensions-and-ret...
Edited by phpe on Friday 9th December 21:14
deckster said:
Relevant income for pension purposes is "any income on which you have paid income tax". So yes, both rental income and your redundancy payments will count.
Sorry that's wrong (although FHL profits are allowable as they are classed as a trade):https://www.rossmartin.co.uk/private-client-a-esta...
Yes, I thought it sounded wobbly. I'm not an expert in this field but my understanding was broadly that it needs to be "earned income", either from employment or self-employment.
I think that running a commercial holiday rental business would count but things like,
Dividend income
Pure rental income
Trust income
don't qualify, even though they are subject to income tax.
I think that running a commercial holiday rental business would count but things like,
Dividend income
Pure rental income
Trust income
don't qualify, even though they are subject to income tax.
Earned Income is generally defined as income generated by "work you do" - so employment, self employment, trading partnership income and holiday let income are typically looked on as "earned income".
Investment Income is money generated by making your money (or other assets) work for you, so that includes interest income, dividend income and rental property income (but NOT income from holiday lettings).
Income from a Capital Disposal is NOT earned income either.
Investment Income is money generated by making your money (or other assets) work for you, so that includes interest income, dividend income and rental property income (but NOT income from holiday lettings).
Income from a Capital Disposal is NOT earned income either.
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