Lump sum into pension - benefits?
Discussion
I have a lump sum to invest and looking to top up my pension. If I invest £6k am I right in thinking the pension company (who I'm already contributing to monthly via work - Aviva) will claim 20% tax relief and I claim another 20% from HMRC (i'm a higher rate taxpayer).
This means it costs me £6k, 20% tax relief is claimed by Aviva (£1,500) and I claim an additional 20% (£1,500) as tax relief from HMRC?
So for a £6k layout I get £7,500 funded into my pension and £1,500 added to my annual personal tax allowance. Is this correct?
I'm 51 in 2 months and don't intend drawing on my pension until 60ish.
I could put it in an ISA but the benefit of the 20% relief is tempting, and it would be compounding, as my pension holds similar funds to my ISA's so would receive a 20% boost up front. Appreciate the additional 20% is only a benefit in the current tax year.
FFG
This means it costs me £6k, 20% tax relief is claimed by Aviva (£1,500) and I claim an additional 20% (£1,500) as tax relief from HMRC?
So for a £6k layout I get £7,500 funded into my pension and £1,500 added to my annual personal tax allowance. Is this correct?
I'm 51 in 2 months and don't intend drawing on my pension until 60ish.
I could put it in an ISA but the benefit of the 20% relief is tempting, and it would be compounding, as my pension holds similar funds to my ISA's so would receive a 20% boost up front. Appreciate the additional 20% is only a benefit in the current tax year.
FFG
That's pretty much it, providing you are earning at least the gross amount you are putting in your pension OVER the current higher rate tax threshold (£45k + £7.5k = £52.5k). If you are earning less that that over the threshold then you can only claim the higher rate relief via your tax code on the amount of your lump sum that would have been taxed at the higher rate.
It is a great way of boosting your pension pot, however thousands of higher rate payers simply don't bother to (or don't know they can) claim higher rate relief.
It is a great way of boosting your pension pot, however thousands of higher rate payers simply don't bother to (or don't know they can) claim higher rate relief.
FlipFlopGriff said:
I have a lump sum to invest and looking to top up my pension. If I invest £6k am I right in thinking the pension company (who I'm already contributing to monthly via work - Aviva) will claim 20% tax relief and I claim another 20% from HMRC (i'm a higher rate taxpayer).
This means it costs me £6k, 20% tax relief is claimed by Aviva (£1,500) and I claim an additional 20% (£1,500) as tax relief from HMRC?
So for a £6k layout I get £7,500 funded into my pension and £1,500 added to my annual personal tax allowance. Is this correct?
I'm 51 in 2 months and don't intend drawing on my pension until 60ish.
I could put it in an ISA but the benefit of the 20% relief is tempting, and it would be compounding, as my pension holds similar funds to my ISA's so would receive a 20% boost up front. Appreciate the additional 20% is only a benefit in the current tax year.
FFG
Yes, you are spot on, that is how it works, assuming the whole of the £9,000 gross amount sits within the higher rate earnings band.This means it costs me £6k, 20% tax relief is claimed by Aviva (£1,500) and I claim an additional 20% (£1,500) as tax relief from HMRC?
So for a £6k layout I get £7,500 funded into my pension and £1,500 added to my annual personal tax allowance. Is this correct?
I'm 51 in 2 months and don't intend drawing on my pension until 60ish.
I could put it in an ISA but the benefit of the 20% relief is tempting, and it would be compounding, as my pension holds similar funds to my ISA's so would receive a 20% boost up front. Appreciate the additional 20% is only a benefit in the current tax year.
FFG
OK, thanks. Just need to work out how much I have much room I have above my earnings so I get the full relief. I've got a company car so have a negative tax code so assume its my taxable income so if my tax code is K100 (ie i pay tax on £1k more than i earn) does that impact on the amount I can put into a pension and still claim the additional relief, ie the personal allowance plus £1k is added to my salary to calculate my total taxable earnings and that is the figure I should be working with to calculate my maximum pension contribution which will still attract 40% relief? Also how do I calculate 1) my employer contribution and 2) my AVC's with another provider and how does this impact? I believe the maximum contribution is £40k so would this be the total gross of all 3 contributions not that I think I'll be anywhere near that figure.
Just remembered the company operate a "pension conversion from salary" as they call it which I think is salary sacrifice which was done some years back. i can't recall the detail but the amount deducted from the gross pay bears no resemblance to the monthly contribution to the pension, in fact its just over 20% of my contribution. Totally bemused how to calculate what I can put in now?????????????
FFG
Just remembered the company operate a "pension conversion from salary" as they call it which I think is salary sacrifice which was done some years back. i can't recall the detail but the amount deducted from the gross pay bears no resemblance to the monthly contribution to the pension, in fact its just over 20% of my contribution. Totally bemused how to calculate what I can put in now?????????????
FFG
Edited by FlipFlopGriff on Wednesday 4th October 14:35
rfisher said:
Maffs innit bro.
I make 20% of £6000 to be £1200.
Overall it costs you £4800 to add £7200 to you pot as you get £1200 tax relief and the provider adds £1200 tax relief to your £6000.
Nope, sorry mate. That's not how it works with pension contributions.I make 20% of £6000 to be £1200.
Overall it costs you £4800 to add £7200 to you pot as you get £1200 tax relief and the provider adds £1200 tax relief to your £6000.
Contributions as described by the OP are paid net of basic rate tax i.e. take the gross amount and knock basic rate (20%) off.
So, you actually need to reverse engineer from his intention to put £6k in. If £6k is going to be the amount net of basic rate tax, then it represents 80% of the gross:
(£6k/80)x100 = £7,500 gross contribution.
So a Higher rate tax payer would get 40% relief (20% coming from the pension provider and 20% through tax return)
True cost would therefore be 60% = £4,500
geddit ?
TFP said:
Nope, sorry mate. That's not how it works with pension contributions.
Contributions as described by the OP are paid net of basic rate tax i.e. take the gross amount and knock basic rate (20%) off.
So, you actually need to reverse engineer from his intention to put £6k in. If £6k is going to be the amount net of basic rate tax, then it represents 80% of the gross:
(£6k/80)x100 = £7,500 gross contribution.
So a Higher rate tax payer would get 40% relief (20% coming from the pension provider and 20% through tax return)
True cost would therefore be 60% = £4,500
geddit ?
just to add...you'd get £1500 back in form of a cheque (or bacs)...£1,500 added to your Personal Allowance isn't the same!!!Contributions as described by the OP are paid net of basic rate tax i.e. take the gross amount and knock basic rate (20%) off.
So, you actually need to reverse engineer from his intention to put £6k in. If £6k is going to be the amount net of basic rate tax, then it represents 80% of the gross:
(£6k/80)x100 = £7,500 gross contribution.
So a Higher rate tax payer would get 40% relief (20% coming from the pension provider and 20% through tax return)
True cost would therefore be 60% = £4,500
geddit ?
TFP said:
JulianPH said:
Yes, you are spot on, that is how it works, assuming the whole of the £9,000 gross amount sits within the higher rate earnings band.
£9k gross ??Contributions paid net of BRT ----> £6k net would be £7.5k gross, no ?
The true cost to a HRT would be £4,500 = 40% relief
rfisher said:
So how does tax relief work for a lump sum pension purchase?
In my occupational pension I can buy an additional £4500 pension per annum for £80,000 lump sum.
If I did that what tax relief would I be able to claim?
I'm looking at paying a lump sum into a pension plan which will then grow up to the point I draw on it. I'm not purchasing an amount that will be taken annually now, just topping up my pot which if the govt add to will grow over the years so should in theory (if my investments do well) be a good investment.In my occupational pension I can buy an additional £4500 pension per annum for £80,000 lump sum.
If I did that what tax relief would I be able to claim?
FFG
FlipFlopGriff said:
CaptainSlow said:
just to add...you'd get £1500 back in form of a cheque (or bacs)...£1,500 added to your Personal Allowance isn't the same!!!
So when I call HMRC and declare my contribution they'll send a cheque and not adjust my tax code?Bonus!
FFG
eta
Obvious write to them rather than call.
FlipFlopGriff said:
OK, thanks. Just need to work out how much I have much room I have above my earnings so I get the full relief. I've got a company car so have a negative tax code so assume its my taxable income so if my tax code is K100 (ie i pay tax on £1k more than i earn) does that impact on the amount I can put into a pension and still claim the additional relief, ie the personal allowance plus £1k is added to my salary to calculate my total taxable earnings and that is the figure I should be working with to calculate my maximum pension contribution which will still attract 40% relief? Also how do I calculate 1) my employer contribution and 2) my AVC's with another provider and how does this impact? I believe the maximum contribution is £40k so would this be the total gross of all 3 contributions not that I think I'll be anywhere near that figure.
Just remembered the company operate a "pension conversion from salary" as they call it which I think is salary sacrifice which was done some years back. i can't recall the detail but the amount deducted from the gross pay bears no resemblance to the monthly contribution to the pension, in fact its just over 20% of my contribution. Totally bemused how to calculate what I can put in now?????????????
FFG
So do I calculate the figure I can get 40% relief on based on salary plus £1k, ie i don't have a personal allowance of £11.5k due to the car and health cover.Just remembered the company operate a "pension conversion from salary" as they call it which I think is salary sacrifice which was done some years back. i can't recall the detail but the amount deducted from the gross pay bears no resemblance to the monthly contribution to the pension, in fact its just over 20% of my contribution. Totally bemused how to calculate what I can put in now?????????????
FFG
Edited by FlipFlopGriff on Wednesday 4th October 14:35
FFG
Close to doing this now. Am I right in that I can bring forward previous years allowances too. ie if I can only get a benefit of £20k for this year before the relief %age reduces then I can bring forward unused allowance form previous years, ie 2 years would get me up to the max of £40k?
FFG
FFG
PurpleMoonlight said:
Yes you can bring forward unused annual alowance from the previous three years if your total pension contributions will be more than £40,000.
You will only get personal tax relief againt the tax you pay on earned income for the current year.
Thanks. So only 20% relief on any amount over your taxable income. Budget is Wednesday and pension tax relief keeps being mentioned so will do it before then.You will only get personal tax relief againt the tax you pay on earned income for the current year.
How does the 40% relief work on my company contributing to a defined contribution pension in my case with Aviva. I contribute a %age (which is salary sacrifice), they add a contribution to give a figure which goes into the pension which is split over various funds (I've changed from the standard offerings). Aviva then claim back 20% relief (I think) but what about the other 20%. Is this something I need to declare or is the additional rate tax automatically added to the Aviva pot?
I'm also doing AVC's with another company which I do declare to HMRC to get the additional tax relief.
FFG
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