Pension rules are continually changing and this is our current understanding of the rules that apply at the present time.
Who can make Contributions into the SIPP?
Payments may be made by yourself, your employer or a third party on your behalf.
Transfers can also be received from other pension schemes.
What Contributions may be made? (Annual Allowance & Life Time Allowance)
The Annual Allowance is the term used to restrict pension contributions being made into all your pension plans and if you pay over this amount you may suffer a tax charge on the excess. Care should be taken in deciding what level of contributions to make during the year.
For the year 2017 / 2018 the annual allowance is £40,000. This means that you may contribute up to the lower of 100% of your earnings or £40,000 and receive income tax relief against those contributions.
From 6 April 2016 all input periods have been aligned with the financial year so that they run from 6 April to 5 April the following year.
Anyone can contribute £3,600 gross and receive tax relief even if you do not have any earnings. There is no minimum contribution level and there is no minimum age qualification as a parent or guardian may make contributions for a child.
The frequency of contributions may vary and you can vary the amounts to suit your circumstances.
When an asset is contributed to the SIPP this is termed an 'In Specie' contribution and there is a set procedure for this but you must be aware that this could trigger a charge to capital gains tax on the asset being transferred into the pension fund.
Contributions must stop by your 75th birthday and tax relief on contributions also stops on this date.
There is a maximum value known as the Life Time Allowance above which a tax charge may be levied on the excess. The current Lifetime Allowance is £1,000,000.
Tapered Annual Allowance
If your annual income exceeds £150,000 then the annual allowance will be reduced on a tapered basis by £1 for each £2 of income. This means that if you earn £210,000 or more the maximum contribution will be restricted to £10,000 gross. This known as the Tapered Annual Allowance.
Money Purchase Annual Allowance
The Money Purchase Annual Allowance is triggered when you take benefits from your pension plan by one of the following methods:
- Flexibly Accessing Your Benefits
- Taking an Uncrystallised Funds Lump Sum
- Taking above the maximum GAD income if you are in Capped Drawdown
The maximum gross contribution under this allowance is £4,000, effective from 6 April 2017.
How is tax reclaimed?
As the administrator we claim basic rate tax on personal contributions so that for every £100 contributed we will reclaim £25 and this will be added to your pension fund.
Higher rate tax relief should be claimed via Self Assessment and this may reduce your tax bill, alter your tax code, or create a rebate.
Employer contributions are treated as a business expense and will be dealt with by your local inspector of taxes.
Can I contribute for previous years?
Provided that you were a member of a registered pension scheme for the years that you are claiming for you may go back three years and contribute up to 100% of your earnings or the relevant annual allowance, whichever is lower, less the contributions already made for those years.
The annual allowances for previous years are:
2016/2017 - £40,000
2015/2016 - £40,000
2014/2015 - £40,000
Please note that your income for the current year must be sufficient to cover the total contribution.
If you are in Flexi-Access Drawdown then you cannot carry forward unused relief from previous years.
- There is a limit on the overall value of your pension schemes (all schemes) that you may accumulate without incurring a tax charge.
- From 6 April 2016 this is now set at £1,000,000.
- Pension funds that exceed this amount will be taxed on the excess.
- Various protections can be registered to safeguard your pension.
- Previous protection for Enhanced or Primary protection will still continue.
- The minimum retirement age since 6 April 2011 is currently 55.
- Pensions may be taken early in the event of serious ill health.
- Certain professions may have protected early retirement ages.
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