Sipp advice

[Whistle]

I have just combined a couple of old pensions into a sipp via a wealth management company, I have agreed to pay £500.00 per month into the sipp from my salary

I wanted to transfer £50k worth of savings into the sipp before April but was advised this would be a problem with HMRC as I only earn minimum wage and take the rest in dividends and rental income.

Obviously to gain the 40% tax relief

He says dividends and rental don’t count as salary so would show up with HMRC as it’s a payment of around 5 years salary in one go.

I find this hard to believe ??

[xeny]

Tax relief on pension investments is income tax relief. If you are on minimum wage, what you propose will not work, and HMRC will "find out" when you try and claim that tax relief.

[fat80b]

Surely the answer is to increase your income and then sacrifice it or pay it into the sipp instead of taking it as dividends?

[Caddyshack]

Ask the wealth management company to explore a remuneration strategy that would allow the pension payments, they are the experts and they get business from it.

[phpe]

Do a calculation for Carry Forward rules, to see what unused allowances you have from earlier years that can help you maximise what to pay in now.

https://www.moneyhelper.org.uk/en/pensions-and-ret...

https://www.hl.co.uk/pensions/contributions/carry-...

As stated, rental income and dividend income don't count toward the relevant earnings rules (unless the rental income is from holiday lettings)

https://www.moneyhelper.org.uk/en/pensions-and-ret...

Edited by phpe on Friday 5th January 20:52

[PistonHead007]

Whistle said:

He says dividends and rental don’t count as salary so would show up with HMRC as it’s a payment of around 5 years salary in one go.

I find this hard to believe ??

You better believe it because it's true.

If you have your own limited company with some spare cash in the company account you can make an employer contribution though.

[supersport]

phpe said:

Do a calculation for Carry Forward rules, to see what unused allowances you have from earlier years that can help you maximise what to pay in now.

https://www.moneyhelper.org.uk/en/pensions-and-ret...

https://www.hl.co.uk/pensions/contributions/carry-...

As stated, rental income and dividend income don't count toward the relevant earnings rules (unless the rental income is from holiday lettings)

https://www.moneyhelper.org.uk/en/pensions-and-ret...

Edited by phpe on Friday 5th January 20:52

Carry forward is irrelevant if you don’t earn enough in the current tax year.

[Rufus Stone]

Stop taking dividends, make an employer pension contribution instead. Live off the savings.

[AndyAudi]

Not sure what you are planning but If you are nearing retirement age & making large not normal contributions to you fund, I think there can be complications if you intend to take out the the tax free element on retirement.

Basically they don’t let you do that, so may be worth checking.

[Rufus Stone]

AndyAudi said:

Not sure what you are planning but If you are nearing retirement age & making large not normal contributions to you fund, I think there can be complications if you intend to take out the the tax free element on retirement.

Basically they don’t let you do that, so may be worth checking.

Explain please?

[AndyAudi]

Rufus Stone said:

Explain please?

I believe,

Causes complications if you intend to both take some of your pension & continue to fund other pensions.

Eg if OP is in 50’s intending to access some funds now but wants to maintain the benefits of tax relief on contributions in the future.

May be tax beneficial long term to spend the savings rather than start to draw the pension after putting in large chunks from savings.

[Rufus Stone]

AndyAudi said:

I believe,

Causes complications if you intend to both take some of your pension & continue to fund other pensions.

Eg if OP is in 50’s intending to access some funds now but wants to maintain the benefits of tax relief on contributions in the future.

May be tax beneficial long term to spend the savings rather than start to draw the pension after putting in large chunks from savings.

You are referring to the Money Purchase Annual Allowance. That is not triggered by the receipt of the 25% Pension Commencement Lump Sum.

[phpe]

supersport said:

phpe said:

Do a calculation for Carry Forward rules, to see what unused allowances you have from earlier years that can help you maximise what to pay in now.

https://www.moneyhelper.org.uk/en/pensions-and-ret...

https://www.hl.co.uk/pensions/contributions/carry-...

As stated, rental income and dividend income don't count toward the relevant earnings rules (unless the rental income is from holiday lettings)

https://www.moneyhelper.org.uk/en/pensions-and-ret...

Edited by phpe on Friday 5th January 20:52

Carry forward is irrelevant if you don’t earn enough in the current tax year.

As a company director, the OP is in a potentially good position to work out what unused Carry Forward there is available, and then to have the company pay any contribution directly as a Employer Contribution, allowing the company to maximise the value of the payment and the associated corporation tax benefits, without the OP needing to have the actual relevant earnings to support this, as long as it meets the "wholly & exclusively" criteria

I'm still intrigued why the OP is making £500 p/m contributions from his net salary, when it would be much more tax & NI efficient overall to have his company pay them directly as Employer Contribution.

[Rufus Stone]

phpe said:

As a company director, the OP is in a potentially good position to work out what unused Carry Forward there is available, and then to have the company pay any contribution directly as a Employer Contribution, allowing the company to maximise the value of the payment and the associated corporation tax benefits, without the OP needing to have the actual relevant earnings to support this, as long as it meets the "wholly & exclusively" criteria

I'm still intrigued why the OP is making £500 p/m contributions from his net salary, when it would be much more tax & NI efficient overall to have his company pay them directly as Employer Contribution.

I suspect is PAYE salary is £9000 pa, so no tax or NI. The £500 pm personal contribution would still attract £125 pm tax relief claimed directly by the pension provider.

[Sheepshanks]

phpe said:

As a company director, the OP….

He doesn’t say he is. If he is, it’s odd that he’s asking the question, and that his wealth manager hasn’t dealt with it.

[AndyAudi]

Rufus Stone said:

You are referring to the Money Purchase Annual Allowance. That is not triggered by the receipt of the 25% Pension Commencement Lump Sum.

What’s pension recycling?
Think that might be what I’m getting confused about?

[xeny]

AndyAudi said:

What’s pension recycling?
Think that might be what I’m getting confused about?

To quote HMRC:

"Recycling of a pension commencement lump sum involves using that lump sum as the means to increase contributions significantly to a registered pension scheme. The recycling rule is intended to prevent the systematic exploitation of the tax rules for registered pension schemes to generate artificially high amounts of tax relief by using the pension commencement lump sum to make a further, tax-relieved, contribution to a registered pension scheme."

from https://www.gov.uk/hmrc-internal-manuals/pensions-...