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bigduckontax
bigduckontax, Accountant
Category: Tax
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I received a unfunded top-up to my final salary pension from

Customer Question

I received a unfunded top-up to my final salary pension from my employer , it was paid via the Company's payroll and was subject to Employers NI. The Company brought out the liability by paying me a lump sum plus 10 annual payments.
Question: could these payments be considered as earned income and, as such be, invested in a pension?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I'm Keith and happy to help you with your question.

I fear so, but were you to invest them in a private pension scheme they would be allowable against income tax up to 100% of your emoluments subject to a maximum of 40K [14/15 tax year, 50K before]. If this were invested in a SSIP then you could go back several years to mop up unused contribution levels. Remember employers payments into pension schemes are part of the 40K limit.

Here is some Gov UK advice if you are no longer employed:

'If you don’t pay Income Tax You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you: You don’t pay Income Tax, eg because you’re on a low income Your pension provider claims tax relief for you at a rate of 20% (relief at source)'

I think Hargreaves Lansdowne explains it better:

'You can receive 20% tax relief even if you don't pay tax. The maximum you can contribute is £3,600 gross - a payment of £2,880 to which the taxman adds £720. This is the case even for people who don't pay tax, such as children and non-earning spouses.'

I do hope that brief survey of your position helps.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks, ***** ***** talking about quite large sums e.g. in this tax year I am liable to pay around £100,000 on the lump sum payment. If I put this into a pension could I set the contribution off against the tax liability?

Expert:  bigduckontax replied 2 years ago.
In the 14/15 tax year the maximum contribution to a pension allowable against tax is GBP 40K. In the 13/104 tax year it was 50K and in tax years before that unlimited. In any event pension contributions may not exceed 100% of salary. The use of a SIPP allows you to go back several years to mop up unused contribution levels.
If you have no salary or self employed income then your contribution is limited as indicated by Hargreaves Lansdowne's advice given in my original answer.
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.