Question
I have reached 60 years of age and during 2011/12 I retired, received substantial voluntary redundancy plus 3 months PILON. I could pay £80k into a SIPP (£100k gross).
My question is: which of those three (salary, redundancy, PILON) qualify as 'earnings' in 2011/12 qualifying for tax relief on investing into the SIPP?
They all appear to be taxed under PAYE, apart from the first £30k of redundancy. If any of these three does not qualify I would have to scale back my SIPP investment. I have sufficient allowance remaining from the last 4 years x £50k.Answer
Sorry for the slow reply, appreciate the 2011/12 tax year has already passed. However, for reference:
HMRC does not count the first £30,000 of redundancy payments (which are generally tax-free) as earnings. So you'll need to ignore this when calculating your annual earnings.
Pay in lieu of notice (PILON) is treated as earnings (and taxable) provided it's actually a payment in respect of the notice period you would otherwise have worked (i.e. you're being paid for 'gardening leave').
So the pension contribution can be up to your salary plus PILON and any redundancy payment over £30,000.
Just as a note for other readers: HMRC allows you to carry forward unused annual £50,000 pension contribution allowances from the previous three tax years, provided you've fully used your current £50,000 allowance. However, you will only enjoy tax relief up to your earnings in the current tax year if less than the carried forward and current allowance combined.
I have reached 60 years of age and during 2011/12 I retired, received substantial voluntary redundancy plus 3 months PILON. I could pay £80k into a SIPP (£100k gross).
My question is: which of those three (salary, redundancy, PILON) qualify as 'earnings' in 2011/12 qualifying for tax relief on investing into the SIPP?
They all appear to be taxed under PAYE, apart from the first £30k of redundancy. If any of these three does not qualify I would have to scale back my SIPP investment. I have sufficient allowance remaining from the last 4 years x £50k.Answer
Sorry for the slow reply, appreciate the 2011/12 tax year has already passed. However, for reference:
HMRC does not count the first £30,000 of redundancy payments (which are generally tax-free) as earnings. So you'll need to ignore this when calculating your annual earnings.
Pay in lieu of notice (PILON) is treated as earnings (and taxable) provided it's actually a payment in respect of the notice period you would otherwise have worked (i.e. you're being paid for 'gardening leave').
So the pension contribution can be up to your salary plus PILON and any redundancy payment over £30,000.
Just as a note for other readers: HMRC allows you to carry forward unused annual £50,000 pension contribution allowances from the previous three tax years, provided you've fully used your current £50,000 allowance. However, you will only enjoy tax relief up to your earnings in the current tax year if less than the carried forward and current allowance combined.
Read this Q and A at http://www.candidmoney.com/questions/question653.aspx
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