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Your client and/or their employer are entitled to contribute to any number of registered pension schemes. The issues to consider are whether the contribution will qualify for tax relief and the possibility of any tax charges that might apply now or in the future.
What can I reclaim tax on?
Generally speaking, anyone is entitled to contribute to a registered pension scheme, the only issue is whether or not they receive tax relief on the contributions.
If your client is a UK resident, they can contribute up to the higher of £3,600 or 100% of their relevant UK taxable earnings and receive tax relief on those contributions. However, where the total contributions paid (by your client and/or their employer) exceed the annual allowance, there will normally be a tax charge of up to 45% (up to 46% for Scottish taxpayers) depending on their taxable income and the amount of excess pension savings.
Personal contributions made in excess of 100% of relevant UK taxable earnings do not receive tax relief and do not count towards an individual's annual allowance.
If your client is a non-UK resident individual, they are entitled to contribute but will not be entitled to any tax relief on contributions.
If your client is currently non-resident but has been resident or had earnings chargeable to UK income tax in the last five years, they will be entitled to contribute but will only receive tax relief on contributions up to £3,600 gross (£2,880 net).
Net or gross?
When a personal contribution is paid, we will need to know whether it is eligible for tax relief. If it is, the contribution is deemed to be net of basic rate tax - we will reclaim tax from HMRC and credit it to your clients SIPP account when it is received. Depending on your clients personal tax position, notably higher rate tax payers, they may be able to make a further tax reclaim through their annual self assessment return. If the contribution is not eligible for tax relief, it is gross and we will not reclaim tax from HMRC.
You should be aware that if a tax claim is made to HMRC to which it then transpires your client is not eligible, HMRC will require us to refund it to them. This may result in sufficient disinvestment of your clients SIPP funds to repay the tax. The contribution will then be deemed to have been paid gross.
Method of payment
Your client can arrange to pay contributions either on a regular or one-off basis. For regular contributions, your client should complete a Direct Debit instruction. Single contributions can be made at anytime by cheque. Our contributions form can be used but does not necessarily need to; all we need is:
If you are unsure about the payee please contact your adviser or us.
There is no limit on how much an employer can contribute to your clients SIPP. However, where the aggregate of all employer and personal relievable contributions in the tax year is over the annual allowance, there will generally be a tax charge to your client personally on the excess.
For employer contributions to receive tax relief, they must be 'wholly and exclusively for the purposes of trade' as defined by Income and Corporation Taxes Act 1988. HMRC have issued guidance for employers to help define this, including pages in the online Pension Tax Manual.