Pension Contributions and Income Tax

[sumo69]

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

[CaptainSlow]

Which is what I said three days ago.

[sumo69]

CaptainSlow said:

Which is what I said three days ago.

Yes but it seem that some didn't believe it so I set it out in simple numbers!!

[CaptainSlow]

You mean the same numbers I used? Anyway, I think we're there now.

[Brave Fart]

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.
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.

[CaptainSlow]

Sounds about right.

[sumo69]

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!!

David

[Brave Fart]

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.
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.

[Steve vRS]

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

[Eric Mc]

Yes - fill in the appropriate box on the return.