Simple pension & tax question

[55palfers]

Due to an oversight on my part I have strayed into 40% tax territory.

I am now retired and get State Pension.

I have a few uncrystalised company DC pension pots.

As a proper pensioner I'm wondering if I am still allowed to put some of my cash savings wedge into one of the pots and possibly get the added loveliness of tax relief at 40%? Total value is no where near any lifetime allowances.

In the current climate the value of the pots has dropped a fair bit, so if I am allowed to pay some in, is it still sensible to take a punt?

No plans to draw on this pot for a year or so.

Thanks

[PistonHead007]

Assuming you only have pension income then no higher rate tax relief for you. You can pay in up to £3,600 gross including £720 of basic rate relief, costing you £2,880.

[craig1912]

Where is your other income coming from to make you a 40% tax payer.

I’m not sure the answer above is correct as you may well be able to get tax relief at 40% but there are a number of rules around it such as Money Purchase Annual Allowance.

[PistonHead007]

It is correct.

Unless you have sufficient relevant UK earnings that take you into higher rate tax then no higher rate tax relief. You can't have £45k of pension income and £10k of earnings to try and claim some higher rate relief.

[craig1912]

PistonHead007 said:

It is correct.

Unless you have sufficient relevant UK earnings that take you into higher rate tax then no higher rate tax relief. You can't have £45k of pension income and £10k of earnings to try and claim some higher rate relief.

He’s states that he is paying 40% tax, other than the State pension he hasn’t said what his other source of income is.

[Mr Pointy]

craig1912 said:

PistonHead007 said:

It is correct.

Unless you have sufficient relevant UK earnings that take you into higher rate tax then no higher rate tax relief. You can't have £45k of pension income and £10k of earnings to try and claim some higher rate relief.

He’s states that he is paying 40% tax, other than the State pension he hasn’t said what his other source of income is.

The OP also says he's retired so it's not a wild guess that it's not coming from earned income - rental income is one likley source.

OP: you can only make contributions up to the limit of earned income - rental income, interest & dividends don't count. If you don't have any relevant income then you are limited to £2880/3600

[PistonHead007]

RTFQ.

'Retired' and 'proper pensioner'...

[craig1912]

Mr Pointy said:

The OP also says he's retired so it's not a wild guess that it's not coming from earned income - rental income is one likley source.

OP: you can only make contributions up to the limit of earned income - rental income, interest & dividends don't count. If you don't have any relevant income then you are limited to £2880/3600

Yes I don’t disagree but whatever he can contribute to his pension, can’t he get tax relief at his marginal rate which he states at 40%?

[anonymous-user]

craig1912 said:

Yes I don’t disagree but whatever he can contribute to his pension, can’t he get tax relief at his marginal rate which he states at 40%?

No, he has no net relevant earnings upon which 40% tax is paid.

[Somebody]

In the absence of a salary, would share options, which are processed and taxed via the former employer's payroll, count as earned income?

[Richonenope]

He could pay in £2880 net of basic rate tax relief and have £3,600 invested in the pension with no need for relevant earnings.

This would then extend his basic rate tax band by £3,600 and this can give 40% effective tax relief.

Depending on the scenario a pension contribution can give effective tax relief of over 350%. For example it can reduce the effect of the child benefit higher earners charge, reduce tax on surrendering an investment bond as the contribution expands your basic rate tax band to give you additional relief.

Simples.

[PistonHead007]

Extending the basic rate band is how higher rate relief is granted for personal contributions but the OP doesn't have eligible earnings to grant higher rate relief. Ergo, just the 20% claimed by the scheme.

Simples.

[55palfers]

Thanks everyone for taking the time to reply. Apologies for my being so vague.

The combination of my earnings as an employee, money from existing private pensions, plus now my State Pension, take me into 40% territory.

My actual employed PAYE earnings 2021/22 were around £38K. How much can I put into my pot do you think?

Thanks again.

[PistonHead007]

No higher rate relief as your RUKE are all within basic rate.

How much depends on whether you've triggered the Money Purchase Annual Allowance or not. If the only money you've had from pensions is defined benefit (final salary/career average type schemes) then you can pay in up to £38k gross.

If you've used UFPLS or taken a penny out of a drawdown account then you're stuck with a maximum of £4,000 gross.