Vanguard Personal Pension - tax relief at 25% ????

[anonymous-user]

[redacted]

[Mr Pointy]

The relief is 20% of the gross, not the net. I paid in £2880 & this was topped up to £3600 (£2880 * 1.25 = 3600). 80% of £3600 is £2880, which gives 20% tax credit. As you say you claim the rest on your SA form.

Let's hope I've got this right!

[TwigtheWonderkid]

Yup. You pay in £800 and they add 25% to bring it up to £1000. Because you had earned £1000 that was then taxed at 20% hence you ended up with the £800 you then paid in.

Then you contact HMRC to tell them you've paid in £800 and they will adjust your tax code to ensure you get the extra £200 back (because when you earned £1000, you only actually got £600).

[LeoSayer]

It's correct.

Eg.
Your net contribution is £1000
Vanguard give you tax relief of £250
Your total gross contribution is £1,250

The tax relief is calculated as 20% of £1,250.

You can calculate the gross value using 1000/0.8 = 1250.

[leef44]

anonymous said:

[redacted]

If you have a personal pension which is not connected with your employment pay then you would need to claim the higher rate tax relief from HMRC.

The amount you claim is based on how much has been contributed into the pension. So in the above example:
you contributed 800 and got 200 tax relief. This takes you to 1000.
The total pension contribution is 1000. You are now claiming relief on 1000 of contribution.
If this is all covered by your higher rate income then it works out that you have total 400 tax relief less 200 already given, so you have 200 more tax relief to refund from HMRC.

[c_206]

People is this the same for self employed people?

[Mr Pointy]

c_206 said:

People is this the same for self employed people?

Yes. If you have a SIPP or Personal Pension you get tax credit from HMRC on contributions. You can even pay in if you aren't working or are a child.

[c_206]

Mr Pointy said:

Yes. If you have a SIPP or Personal Pension you get tax credit from HMRC on contributions. You can even pay in if you aren't working or are a child.

thanks mate, Looking into investing something in a sipp or pension scheme as am 34 now so think its about time. Self employed aswell

With vanguard or anyone similar is it as easy as investing 1000 and getting topped up by 20%, giving me 1200 in the pot??

Would i then need to inform HMRC when doing my SA?

[Mr Pointy]

c_206 said:

Mr Pointy said:

Yes. If you have a SIPP or Personal Pension you get tax credit from HMRC on contributions. You can even pay in if you aren't working or are a child.

thanks mate, Looking into investing something in a sipp or pension scheme as am 34 now so think its about time. Self employed aswell

With vanguard or anyone similar is it as easy as investing 1000 and getting topped up by 20%, giving me 1200 in the pot??

Would i then need to inform HMRC when doing my SA?

Yes, the 20% credit is applied automatically by Vanguard (or whoever you go with) but note it can take some time - 6-8 weeks isn't unusual. I'd have to dig out an old SA form but I'm sure there's a section where you enter any pension contributions.

It's definately time to start putting money away. Time invested is a huge benefit.

[LeoSayer]

c_206 said:

thanks mate, Looking into investing something in a sipp or pension scheme as am 34 now so think its about time. Self employed aswell

With vanguard or anyone similar is it as easy as investing 1000 and getting topped up by 20%, giving me 1200 in the pot??

Would i then need to inform HMRC when doing my SA?

The relief will be £250, see my earlier post.

[leef44]

LeoSayer said:

c_206 said:

thanks mate, Looking into investing something in a sipp or pension scheme as am 34 now so think its about time. Self employed aswell

With vanguard or anyone similar is it as easy as investing 1000 and getting topped up by 20%, giving me 1200 in the pot??

Would i then need to inform HMRC when doing my SA?

The relief will be £250, see my earlier post.

And regards self assessment and higher rate tax (if applicable), see my earlier post

[cheeky_chops]

just to keep the info here, my brain isnt working atm...

If you are expecting a salary over the year of say £51,000, how much should you pay into your pension to get below the 40% tax - is it £600? Then 25% is added (and then claim the additional via self assessment)

Is that addition claim via SA sent to pension provider or paid back in payroll via a change to tax code? TIA

[leef44]

cheeky_chops said:

just to keep the info here, my brain isnt working atm...

If you are expecting a salary over the year of say £51,000, how much should you pay into your pension to get below the 40% tax - is it £600? Then 25% is added (and then claim the additional via self assessment)

Is that addition claim via SA sent to pension provider or paid back in payroll via a change to tax code? TIA

If you are contributing into a private/SIPP scheme outside your payroll then you pay in 800 pounds. 200 pension tax credit is added to your fund giving you a total 1000. You then make the claim in your self-assessment that you have 1000 pension contribution outside your payroll. You get the other 200 back as tax-refund or PAYE/tax code update.

If you were making a contribution to a company scheme, you would make 1000 contribution from your gross pay.

[cheeky_chops]

leef44 said:

If you are contributing into a private/SIPP scheme outside your payroll then you pay in 800 pounds. 200 pension tax credit is added to your fund giving you a total 1000. You then make the claim in your self-assessment that you have 1000 pension contribution outside your payroll. You get the other 200 back as tax-refund or PAYE/tax code update.

If you were making a contribution to a company scheme, you would make 1000 contribution from your gross pay.

cheers its a company scheme and thats how i thought it worked - whats confusing me is am paying exactly the same monthly tax as before i joined the scheme. The provider is adding 25% back in the pension scheme.

pay slip reads monthly salary £4333. tax £691. pension £173. tax relief £43 - these are the same as https://www.thesalarycalculator.co.uk/salary.php excluding pension (4%)

Is this a payroll call or a self assessment?

[leef44]

cheeky_chops said:

cheers its a company scheme and thats how i thought it worked - whats confusing me is am paying exactly the same monthly tax as before i joined the scheme. The provider is adding 25% back in the pension scheme.

pay slip reads monthly salary £4333. tax £691. pension £173. tax relief £43 - these are the same as https://www.thesalarycalculator.co.uk/salary.php excluding pension (4%)

Is this a payroll call or a self assessment?

If you have a payroll/HR/pension department or person you can talk to in your company then it would be better to make an appointment with that person.

Company schemes can vary depending on how it is set up and managed. It sounds like your scheme takes your contribution after tax and then credits back separately in the pension scheme. This could be the reason why your tax doesn't change.

This could be because your company scheme is not integrated with your payroll system but is a separate scheme which your company has set up.

You would need to talk to someone in your company to work out whether you need to claim the higher rate tax separately. It could be there is a time lag from when you started in the scheme to your payroll (PAYE) tax code being updated in HMRC. Or it could be that your PAYE code has not been updated yet.

Normally PAYE code would be updated rather than you having to do a self-assessment in your situation.

[JulianPH]

I think this has been fully answered, but thought I would add.

£100 of net salary is £80 after 20% basic rate tax, To gross this back up you need a 25% increase (i.e. £80 x 125% = £100)

For any higher rate contributions the same rule applies.

So if you invest £8k of higher rate earnings then you pension/SIPP provider will reclaim the basic rate of tax (£2k) and then you personally get back a further £2k via your tax return.

This gives you a 66% return on your taxable income (same thing - 40% tax deducted requires a 66% uplift to get you back to the original gross amount).

[cheeky_chops]

leef44 said:

If you have a payroll/HR/pension department or person you can talk to in your company then it would be better to make an appointment with that person.

Company schemes can vary depending on how it is set up and managed. It sounds like your scheme takes your contribution after tax and then credits back separately in the pension scheme. This could be the reason why your tax doesn't change.

This could be because your company scheme is not integrated with your payroll system but is a separate scheme which your company has set up.

You would need to talk to someone in your company to work out whether you need to claim the higher rate tax separately. It could be there is a time lag from when you started in the scheme to your payroll (PAYE) tax code being updated in HMRC. Or it could be that your PAYE code has not been updated yet.

Normally PAYE code would be updated rather than you having to do a self-assessment in your situation.

cheers Leaf at least im not imagining it!

[2 GKC]

JulianPH said:

I think this has been fully answered, but thought I would add.

£100 of net salary is £80 after 20% basic rate tax, To gross this back up you need a 25% increase (i.e. £80 x 125% = £100)

For any higher rate contributions the same rule applies.

So if you invest £8k of higher rate earnings then you pension/SIPP provider will reclaim the basic rate of tax (£2k) and then you personally get back a further £2k via your tax return.

This gives you a 66% return on your taxable income (same thing - 40% tax deducted requires a 66% uplift to get you back to the original gross amount).


Second paragraph makes no sense. Surely you mean £100 of gross salary

[JulianPH]

2 GKC said:

JulianPH said:

I think this has been fully answered, but thought I would add.

£100 of net salary is £80 after 20% basic rate tax, To gross this back up you need a 25% increase (i.e. £80 x 125% = £100)

For any higher rate contributions the same rule applies.

So if you invest £8k of higher rate earnings then you pension/SIPP provider will reclaim the basic rate of tax (£2k) and then you personally get back a further £2k via your tax return.

This gives you a 66% return on your taxable income (same thing - 40% tax deducted requires a 66% uplift to get you back to the original gross amount).


Second paragraph makes no sense. Surely you mean £100 of gross salary

Yes, I meant gross!