Pension Contributions and Income Tax
Discussion
If a 40% taxpayer, the refund is 25% of the NET payment (ie actual money paid) but 20% of the GROSS (which has had HMRC's basic rate relief added).
Pay £8k contribution, HMRC gross-up by 2K so 10K gross - refund via self-assessment is £2K (£10k @ (40-20)%) so 25% of net and 20% of gross.
David
Pay £8k contribution, HMRC gross-up by 2K so 10K gross - refund via self-assessment is £2K (£10k @ (40-20)%) so 25% of net and 20% of gross.
David
swerni said:
You can't have it both ways.
If it's a salary sacrifice scheme, you haven't earned £60k, you've earned £42385 so are a basic rate take payer.
If it's a personal pension, you've earned £60k for 20% relief in the contribution so can claime 20% back.
Which is it?
Sorry Swerni only just seen this. I am in a salary sacrifice scheme. Earnings after deducting my regular (sacrifice) pension contributions will be bang on £60k for 2015-16. I propose making an extra payment to my pension pot outside of the normal payroll process of £14092 towards the end of the tax year. That will be £17615 gross and mean I'm avoiding higher rate tax. I checked with Aviva and they confirmed this was the case.If it's a salary sacrifice scheme, you haven't earned £60k, you've earned £42385 so are a basic rate take payer.
If it's a personal pension, you've earned £60k for 20% relief in the contribution so can claime 20% back.
Which is it?
I think I can then ask HMRC for £3523 refund [20% of £17615]. Plus I can claim Child Benefit for the two teenage BF's (well, Mrs Brave Fart can I suppose)so that's another £1789 in the kitty.
Or am I missing something (still)?
Mike.
Brave Fart said:
Sorry Swerni only just seen this. I am in a salary sacrifice scheme. Earnings after deducting my regular (sacrifice) pension contributions will be bang on £60k for 2015-16. I propose making an extra payment to my pension pot outside of the normal payroll process of £14092 towards the end of the tax year. That will be £17615 gross and mean I'm avoiding higher rate tax. I checked with Aviva and they confirmed this was the case.
I think I can then ask HMRC for £3523 refund [20% of £17615]. Plus I can claim Child Benefit for the two teenage BF's (well, Mrs Brave Fart can I suppose)so that's another £1789 in the kitty.
Or am I missing something (still)?
Mike.
The interesting point to highlight as a tax practitioner is that this is clever planning should the funds be available to invest - the £17615 investment has actually cost you £8780 in real money, or less than 50% of the investment!!I think I can then ask HMRC for £3523 refund [20% of £17615]. Plus I can claim Child Benefit for the two teenage BF's (well, Mrs Brave Fart can I suppose)so that's another £1789 in the kitty.
Or am I missing something (still)?
Mike.
David
sumo69 said:
The interesting point to highlight as a tax practitioner is that this is clever planning should the funds be available to invest - the £17615 investment has actually cost you £8780 in real money, or less than 50% of the investment!!
David
Yes David, completely agree. I suppose anybody like me [with children, approaching 55 years, earning around the £60k mark but with cash savings] would be advised to think about a pension fund top-up. Not only to get higher rate relief, but to get the Child Benefit. Even a £8,000 cash payment into a pension fund will only cost £4211 when you take off the £2000 tax refund and the £1789 Child Benefit.David
Spend £4211 and get a £10,000 investment? Does make you wonder for how much longer the Government will allow higher rate relief on pension funds............
Mike.
As it turns out, I have been given 20% tax relief at source and have been told by HR that I can reclaim the other 20% when I do my tax return.
As my income affairs are straight forward (one job, no investments or buy to lets etc.) the only reason I do a tax return is for the child benefit refund so is it straight forward to do this pension claim?
Thanks in advance!
Steve
As my income affairs are straight forward (one job, no investments or buy to lets etc.) the only reason I do a tax return is for the child benefit refund so is it straight forward to do this pension claim?
Thanks in advance!
Steve
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