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Vanguard Pension Query

18 replies

talkingdeadscot · 15/03/2022 13:47

Hi, I wonder does anyone know....

I have a Vanguard pension I opened myself. I pay money in and the tax relief is added immediately. I want to put in a lump sum that isn't earnings but the pension will automatically add the tax relief. It does this whatever I put as the source of the money.

Does the pension company 'talk' to HMRC at the end of the tax year and reconcile the payments in with your earnings and then deduct the tax relief if it's not due? If not, how do I get them not to add the tax relief?

Thanks

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nannynick · 15/03/2022 14:19

You need to contact Vanguard support and ask if you can make a payment in to your SIPP which is not eligible for tax relief.
I don't know how they would do it - maybe as though it was an employer contribution rather than a personal one.

Chasingsquirrels · 15/03/2022 17:38

The money might not becoming from your earnings - but will your gross income for the year be mire than the gross pension contributions?

MamaSharkington · 16/03/2022 08:14

@Chasingsquirrels has a very good point. You can contribute up to 100% of your earnings and still get tax relief, even if the "source" isn't earnings. I think this includes employer contributions too so be careful about this (I'm not a financial adviser). Worth looking into though.

Any more than that I guess it would be a call to Vanguard as suggested

MamaSharkington · 16/03/2022 08:17

Although, if it is not going to attract tax relief, why are you using a pension? Why not a s&s ISA? If you put it in a pension it would be taxed on the way out. Seems like you would get downsides but no upsides (ie no tax relief). ISA withdrawals would be tax free, plus no age restrictions.

nannynick · 16/03/2022 08:21

Relevant Earnings - generally comes from employment or self employment. Income from rental property is not counted as relevant earnings.

When maximising pension annual allowance, you need to take account of your contribution, employer contribution and tax relief.
If using Carryforward, be very careful to understand the rules around that.

talkingdeadscot · 16/03/2022 08:45

Hi, thanks for all your help.

Vanguard have confirmed that there is no way to put money into my pension without it attracting tax relief.

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talkingdeadscot · 16/03/2022 08:47

@MamaSharkington

Although, if it is not going to attract tax relief, why are you using a pension? Why not a s&s ISA? If you put it in a pension it would be taxed on the way out. Seems like you would get downsides but no upsides (ie no tax relief). ISA withdrawals would be tax free, plus no age restrictions.
I'll look at this. Thanks for your help
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Alwayscheerful · 16/03/2022 09:39

Vanguards response is interesting .
There is a 4-6 week delay in vanguard claiming the tax relief from HMRC and it arriving in your Vanguard account to be invested.

Presumably HMRC would claim any overpaid tax back at the end of the tax year.

Self employed tend to estimate their earnings and therefore their pension contributions, profits often fluctuate from year to year especially with covid, how does this work with HMRC?

talkingdeadscot · 16/03/2022 09:56

@Alwayscheerful

Vanguards response is interesting . There is a 4-6 week delay in vanguard claiming the tax relief from HMRC and it arriving in your Vanguard account to be invested.

Presumably HMRC would claim any overpaid tax back at the end of the tax year.

Self employed tend to estimate their earnings and therefore their pension contributions, profits often fluctuate from year to year especially with covid, how does this work with HMRC?

Yep, Vanguard seem to have taken the easy way out which I guess is understandable as they market themselves to the 'ordinary guy'. The fewer complications the better.

I'm self employed so I presumed there must be some sort of reconciliation with HMRC at the end of the tax year but it seems not.

I'm now thinking that I'll just use the Vanguard platform for an ISA just to simplify things. Thanks for the help.

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seekingasimplelife · 19/03/2022 14:34

It doesn't matter what the source of money is - you can put in the equivalent of 100% of your income total, and receive the added tax relief in any tax year.
You can even put in money and receive tax relief if you are not earning (eg: a child) up to alimit of £2,880 which the government will top up to £3,600.

This means you could add some in March if you haven't used up your whole allowance, and then start again with another lump sum in April in the new financial year.

Alwayscheerful · 31/03/2022 09:42

@seekingasimplelife

It doesn't matter what the source of money is - you can put in the equivalent of 100% of your income total, and receive the added tax relief in any tax year. You can even put in money and receive tax relief if you are not earning (eg: a child) up to alimit of £2,880 which the government will top up to £3,600.

This means you could add some in March if you haven't used up your whole allowance, and then start again with another lump sum in April in the new financial year.

@seekingasimplelife Just to clarify , I assume the tax can only be claimed on earnt income? Either salary or self employed income. You could not for example include rental income or profits or income from investments?
Alwayscheerful · 01/04/2022 09:19

@seekingasimplelife

It doesn't matter what the source of money is - you can put in the equivalent of 100% of your income total, and receive the added tax relief in any tax year. You can even put in money and receive tax relief if you are not earning (eg: a child) up to alimit of £2,880 which the government will top up to £3,600.

This means you could add some in March if you haven't used up your whole allowance, and then start again with another lump sum in April in the new financial year.

The source of money is important. The source of money must be to be "relevant earnings" as determined by HMRC.
Chasingsquirrels · 01/04/2022 12:36

The source is unimportant in so far as matching £s inflow to £s contributions - ie you don't match specific income to specific outgoings, you have a "pot" of money that comes from and goes out to whereever.

What IS important is ensuring you have relevant earnings to support the pension contributions for tax purposes. Relevant earning are basically earned income (employment and self employment), so don't include dividends, interest, rental income.

talkingdeadscot · 01/04/2022 13:39

@Chasingsquirrels

The source is unimportant in so far as matching £s inflow to £s contributions - ie you don't match specific income to specific outgoings, you have a "pot" of money that comes from and goes out to whereever.

What IS important is ensuring you have relevant earnings to support the pension contributions for tax purposes. Relevant earning are basically earned income (employment and self employment), so don't include dividends, interest, rental income.

Can I ask, does the money you put into the pension have to match net or gross income? I'm self employed so was going to put my entire year's income into my pension but they then add 25% so which amount shall I enter on my tax return? What I actually received?
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Chasingsquirrels · 01/04/2022 13:55

You have to have enough relevant earnings to cover the gross contribution.

So NRE = £40k, pay in £32k (80%, accounting for 20% tax relief). Pension company claims the £8k from HMRC to give you the gross £40k.

talkingdeadscot · 01/04/2022 14:50

Thank you, your help's appreciated.

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Alwayscheerful · 01/04/2022 15:13

@Chasingsquirrels

The source is unimportant in so far as matching £s inflow to £s contributions - ie you don't match specific income to specific outgoings, you have a "pot" of money that comes from and goes out to whereever.

What IS important is ensuring you have relevant earnings to support the pension contributions for tax purposes. Relevant earning are basically earned income (employment and self employment), so don't include dividends, interest, rental income.

Relevant income does include holiday rental Income ( FHL ).
Chasingsquirrels · 01/04/2022 15:19

Yes indeed. For completeness...

www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

Relevant UK earnings means any one or more of the following types of income:

employment income, such as: pay, wages, bonus, overtime, or commission - but only if taxable under Section 7(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) - so including:

the part of a redundancy payment above the £30,000 tax exempt threshold in section 403(1) ITEPA 2003. The first £30,000 of the redundancy payment is not classed as employment income so does not count here. But any amount on top of the £30,000 threshold is classed as employment income and so it is also relevant UK earnings. In making this analysis, care is required not to confuse usual wages or pay, pay in lieu of notice or holiday pay, with the redundancy payment when such elements are bundled into a final payment.benefits in kind which are taxable (applies to employees earning over £8,500, and to directors)profit related pay (including the part which is not taxable)Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP) if paid by the employer and taxable under Section 7(2) ITEPA 2003Permanent Health Insurance (PHI) payments paid by the employer whilst you are still in employmentpay paid by way of Government Securitiespay in the form of units in an authorised unit trust if taxed on the person receiving itamounts taken off pay to buy partnership shares in a share incentive plan in line with paragraph 83 of Schedule 8 of Finance Act 2000

income from a trade, profession or vocation that is chargeable under Part 2 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)(applies if the activity is conducted individually or as a partner acting personally in a partnership)income from a UK and/or EEA furnished holiday lettings business, which is chargeable under Part 3 ITTOIA 2005 (applies if the business is conducted individually, or as a partner acting personally in a partnership)

a UK furnished holiday lettings business means a UK property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005).an EEA furnished holiday lettings business means an overseas property business so far as it consists of the commercial letting of furnished holiday accommodation (Chapter 6 Part 3 ITTOIA 2005) in one or more EEA states.in either case if there is a letting of accommodation only part of which is holiday accommodation, a just and reasonable apportionment is to be made to determine the amount of the income from that business that is to be counted.

patent income, where the individual alone or jointly devised the invention for which the patent in question is granted, in the following categories:

royalties or other sums paid regarding patent use and charged to tax under section 579 ITTOIA 2005 (intellectual property)amounts on which tax is payable under section 587 ITTOIA 2005 (sales of patent rights) or section 593 ITTOIA 2005 (death of seller of patent rights), oramounts on which tax is payable under section 472(5) of the Capital Allowances Act 2001 (balancing charge) or paragraph 100 of schedule 3 to that Act (balancing charges)

Relevant UK earnings are to be treated as not being chargeable to income tax if by virtue of section 2(1) Taxation (International and Other Provisions) Act 2010 (double taxation arrangements), they are not taxable in the United Kingdom. To the extent that they are not chargeable in this way, they will also not count towards the annual limit for relief explained inAnnual limitsabove.

For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings.

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