Pension Contributions and Income Tax
Discussion
I have just changed jobs and started paying into a contributory pension scheme. I am a 40% tax payer and will be paying in a percentage of my salary into the pension scheme. My employer pays in a fixed percentage of my salary also.
Are my contributions taken off my salary before tax? AS an example, if my monthly salary is £2500 and I pay £500 into the pension scheme, am I then liable for income tax on £2000 or do I only get tax relief on 20% - the lower rate of tax?
What about NI contributions?
Thanks in advance!
Steve
Are my contributions taken off my salary before tax? AS an example, if my monthly salary is £2500 and I pay £500 into the pension scheme, am I then liable for income tax on £2000 or do I only get tax relief on 20% - the lower rate of tax?
What about NI contributions?
Thanks in advance!
Steve
If it's an occupational pension scheme your contribution will usually be deducted from your gross salary before income tax is assessed.
If it's a personal pension the net of basic rate tax relief contribution (ie £8 for a gross £10) will be deducted from your net salary after income tax has been assessed. You then personally reclaim any higher rate tax relief via your annual tax return.
If it's a personal pension the net of basic rate tax relief contribution (ie £8 for a gross £10) will be deducted from your net salary after income tax has been assessed. You then personally reclaim any higher rate tax relief via your annual tax return.
supersport said:
Salary sacrifice is the term that you are looking for, then there is no tax or NI taken on the contribution.
Could be wrong on this but, otherwise you only get the tax relief at basic rate and have to claim the other 20% through your self assessment.
yep salary sacrifice saves NI too. But if pensions contributions are deducted before tax you automatically get relief at your marginal rate, so no need to claim through self assessmentCould be wrong on this but, otherwise you only get the tax relief at basic rate and have to claim the other 20% through your self assessment.
Jockman said:
We run a GPP for our staff and the contributions are deducted from net pay and Standard Life reclaims the rest.
Check with your provider.
yep if it's a group personal pension the provider claims basic rate tax relief. If you are a higher rate tax payer you need to claim the extra through self assessmentCheck with your provider.
https://www.moneyadviceservice.org.uk/en/articles/...
I'm in GPP at work and also a higher rate tax payer, but I don't claim back the extra relief via self assessment. I have letter that our provider L&G sent to us to use and I fill in the required information and send that to the tax office about this time of year, every year, with 6 months of photocopied payslips and my tax code then gets adjusted.
If I earn, say, £60,000 in 2015-16, can I pay £17,615 from my savings into my personal pension thus reducing my taxable income to £42385 for the year?
The purpose being to bring my taxable income after personal allowance to the top of the basic rate band [£31785].
If yes, can I do my self assessment on April 6th 2016 and say to HMRC "I'd like a refund of £17,615 x 40% please, that's £7046 thanks very much."
Finally, would they give me that refund, or just adjust my 2016-17 tax code?
Mike.
The purpose being to bring my taxable income after personal allowance to the top of the basic rate band [£31785].
If yes, can I do my self assessment on April 6th 2016 and say to HMRC "I'd like a refund of £17,615 x 40% please, that's £7046 thanks very much."
Finally, would they give me that refund, or just adjust my 2016-17 tax code?
Mike.
Eric Mc said:
No - you get £3,523 back.
You are entitled to 40% tax relief on the pension contributions. You've already had relief at basic rate (20%) so the remaining 20% relief will be given to you as an actual tax refund.
Ah, now I'm confused! How can I have had relief on something I haven't paid yet? I'm suggesting making an extra payment into my pension fund in, say, March 2016. Surely at that point I've paid tax on the full £60k for the year, then suddenly my income falls to £42385. Would I not get all of the tax back on that £17615, all of which has been taxed at 40%? Note that the payment would be by cheque to my pension provider, not through payroll.You are entitled to 40% tax relief on the pension contributions. You've already had relief at basic rate (20%) so the remaining 20% relief will be given to you as an actual tax refund.
Sorry if I'm being dim, and thanks for replying.
Mike.
Edit - just discovered that the pension fund automatically claim 20% from HMRC, I didn't realise that before. So yes, I'd get refunded the remaining 20% as you say Eric. Cheers, Mike.
Edited by Brave Fart on Thursday 26th November 20:01
Eric Mc said:
No - you get £3,523 back.
You are entitled to 40% tax relief on the pension contributions. You've already had relief at basic rate (20%) so the remaining 20% relief will be given to you as an actual tax refund.
I think you'd actually get £4,403.75 back, assuming you now didn't dip below the higher rate threshold.You are entitled to 40% tax relief on the pension contributions. You've already had relief at basic rate (20%) so the remaining 20% relief will be given to you as an actual tax refund.
swerni said:
CaptainSlow said:
Eric Mc said:
No - you get £3,523 back.
You are entitled to 40% tax relief on the pension contributions. You've already had relief at basic rate (20%) so the remaining 20% relief will be given to you as an actual tax refund.
I think you'd actually get £4,403.75 back, assuming you now didn't dip below the higher rate threshold.You are entitled to 40% tax relief on the pension contributions. You've already had relief at basic rate (20%) so the remaining 20% relief will be given to you as an actual tax refund.
However, as stated, this may be restricted as it'll bring the person below the higher rate threshold. So in order to achieve the objective of maximising the standard rate threshold the poster would need to make a smaller pension contribution from savings.
CaptainSlow said:
No, this is the calculation for a 40% rate payer.
However, as stated, this may be restricted as it'll bring the person below the higher rate threshold. So in order to achieve the objective of maximising the standard rate threshold the poster would need to make a smaller pension contribution from savings.
ETA, the contribution from savings would be £14,092 and then the refund would be £3,523.However, as stated, this may be restricted as it'll bring the person below the higher rate threshold. So in order to achieve the objective of maximising the standard rate threshold the poster would need to make a smaller pension contribution from savings.
swerni said:
I know I'm being thick, but how does he get 25% back?
For contributions from savings, ie taxed income, for 40% payer.You pay in £8k, the tax man pays in £2k to the pension pot. Pension pot is now £10k.
You reclaim £2k in your tax return so your savings account has reduced by £6k (Initial payment less tax refund)
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