Higher rate pension relief
Discussion
After some advice with regards to the higher rate pension relief, I assumed having simple PAYE salary that the higher rate pension relief would happen automatically however doing a bit of reading into this suggests it doesn’t. Last few years I’ve been over the £50k rate paying into a salary sacrifice pension 5% employee 5% employer (this will increase in March to 8% employee on a £70k salary. Do I really need to complete a self assessment or has anyone successfully had their tax code changed to compensate? And can I claim back previous years?
Thanks in advance for the help.
Thanks in advance for the help.
If you aren't salary sacrifice (I know OP stated he/she is, but for future info) - I have had my code changed via a phone call and verbally giving the figures.
My company won't change to salary sacrifice, no idea why... other than they can't be bothered to change it.
Most pensions providers only claim back the basic rate 20%.
I explain to nearly everyone I work with to claim the other 20% but I imagine most aren't bothering...
My company won't change to salary sacrifice, no idea why... other than they can't be bothered to change it.
Most pensions providers only claim back the basic rate 20%.
I explain to nearly everyone I work with to claim the other 20% but I imagine most aren't bothering...
Jakey123 said:
If you aren't salary sacrifice (I know OP stated he/she is, but for future info) - I have had my code changed via a phone call and verbally giving the figures.
My company won't change to salary sacrifice, no idea why... other than they can't be bothered to change it.
Most pensions providers only claim back the basic rate 20%.
I explain to nearly everyone I work with to claim the other 20% but I imagine most aren't bothering...
That's my brother. 40% tax payer, (maybe even 45%,) not sure, paying of fortune in taxed income as AVCs, can't be arsed to claim back the extras tax relief. For every £60 he pays in, another £40, should be going in, because he earned £100 to be left with that £60. But his pension co are only claiming back an extra £15, because they assume he only earned £75 to be left with that £60, leaving him losing out on £25 for every £60 he pays in. But it's "too much hassle" he says. Beyond bonkers. My company won't change to salary sacrifice, no idea why... other than they can't be bothered to change it.
Most pensions providers only claim back the basic rate 20%.
I explain to nearly everyone I work with to claim the other 20% but I imagine most aren't bothering...
Interesting. I contribute 10% of my salary (on top of my employers 10%) into my pension and put in most of my bonus. I’m at 40% tax payer. I elected not to salary sacrifice as I thought I would only save the 2% NI which would be offset elsewhere.
Are pension contributions not tax free automatically via PAYE? As an example, if I earned £7k per month and put £700 into a pension am I taxed on £7k or £6.3k? I assumed £6.3k.
Are pension contributions not tax free automatically via PAYE? As an example, if I earned £7k per month and put £700 into a pension am I taxed on £7k or £6.3k? I assumed £6.3k.
matt21 said:
Interesting. I contribute 10% of my salary (on top of my employers 10%) into my pension and put in most of my bonus. I’m at 40% tax payer. I elected not to salary sacrifice as I thought I would only save the 2% NI which would be offset elsewhere.
Are pension contributions not tax free automatically via PAYE? As an example, if I earned £7k per month and put £700 into a pension am I taxed on £7k or £6.3k? I assumed £6.3k.
If you are making Additional Voluntary Contributions (AVC) into your pension scheme, you will most likely be paying these amounts directly to the pension company from your own personal resources i.e. out of your net salary. Therefore, initially you will not be getting any Higher Tax Rate relief on these contributions.Are pension contributions not tax free automatically via PAYE? As an example, if I earned £7k per month and put £700 into a pension am I taxed on £7k or £6.3k? I assumed £6.3k.
There are essentially two methods you can use to ensure that you get the Higher Rate Tax Relief
i) contact HMRC directly and ask them to amend your PAYE tax coding so that you
pay less tax through your salary
ii) submit a Self Assessment tax return after the relevant tax year and obtain a tax refund from HMRC.
Note that making sure HMRC is properly aware of your pension contributions is important not just for tax purposes but it might also have an impact on other income related factors, such as Child Benefit entitlement.
TwigtheWonderkid said:
Jakey123 said:
If you aren't salary sacrifice (I know OP stated he/she is, but for future info) - I have had my code changed via a phone call and verbally giving the figures.
My company won't change to salary sacrifice, no idea why... other than they can't be bothered to change it.
Most pensions providers only claim back the basic rate 20%.
I explain to nearly everyone I work with to claim the other 20% but I imagine most aren't bothering...
That's my brother. 40% tax payer, (maybe even 45%,) not sure, paying of fortune in taxed income as AVCs, can't be arsed to claim back the extras tax relief. For every £60 he pays in, another £40, should be going in, because he earned £100 to be left with that £60. But his pension co are only claiming back an extra £15, because they assume he only earned £75 to be left with that £60, leaving him losing out on £25 for every £60 he pays in. But it's "too much hassle" he says. Beyond bonkers. My company won't change to salary sacrifice, no idea why... other than they can't be bothered to change it.
Most pensions providers only claim back the basic rate 20%.
I explain to nearly everyone I work with to claim the other 20% but I imagine most aren't bothering...
matt21 said:
Beyond salary contributions I do not make any AVCs. Am I getting the full 40% relief automatically?
If the pension contribution is NOT being deducted from your salary BEFORE the PAYE is calculated (i.e. salary sacrifice), then you will only automatically get the 20% Basic Rate Tax relief.You MIGHT be able to get HMRC to adjust your PAYE code so that the code automatically compensates for the 40% tax relief you are due OR you can wait until after the tax year has finished and retrospectively ask for a tax refund in respect of the 40% tax relief you did not get during the tax year. You can do this by completing a self assessment tax return.
As Eric Mc mentioned, if you are claiming any child benefit and you have a taxable "income" over £50k, you really need to be completing a tax self assessment.
I say taxable "income" in quotations, as this incudes taxable benefits like company car BIK.
i.e.
Salary £45k
Bonus £5k
Company car benefit £10k
You might think you earn £50k but in the eyes of your tax man, your "income" is £60k so you have to pay back all of your Child benefit.
If you don't do a self assessment, the tax man will contact you in a few years time for a bill for £6k or so depending on how many years you have taken the child benefit
I say taxable "income" in quotations, as this incudes taxable benefits like company car BIK.
i.e.
Salary £45k
Bonus £5k
Company car benefit £10k
You might think you earn £50k but in the eyes of your tax man, your "income" is £60k so you have to pay back all of your Child benefit.
If you don't do a self assessment, the tax man will contact you in a few years time for a bill for £6k or so depending on how many years you have taken the child benefit
If you only need to claim the higher rate relief you can just register on gov.uk for a Personal Tax Account and notify them of your pension contributions via a secure message. They will use this figure when they issue your P800 tax calculation and you’ll be able to apply for a refund to your bank account.
You need to give them the grossed up figure - which is your cash contribution x 1.25. You can’t count employer contributions.
You can submit a tax return, and if you have other income or child benefit involved you must, but when I did so “uninvited” and with only PAYE on it, HMRC sat on it for 9 months and I had to submit a complaint to get the money refunded when other years they’d issue a refund within a few weeks of notifying them via secure message.
You need to give them the grossed up figure - which is your cash contribution x 1.25. You can’t count employer contributions.
You can submit a tax return, and if you have other income or child benefit involved you must, but when I did so “uninvited” and with only PAYE on it, HMRC sat on it for 9 months and I had to submit a complaint to get the money refunded when other years they’d issue a refund within a few weeks of notifying them via secure message.
FreeLitres said:
As Eric Mc mentioned, if you are claiming any child benefit and you have a taxable "income" over £50k, you really need to be completing a tax self assessment.
I say taxable "income" in quotations, as this incudes taxable benefits like company car BIK.
i.e.
Salary £45k
Bonus £5k
Company car benefit £10k
You might think you earn £50k but in the eyes of your tax man, your "income" is £60k so you have to pay back all of your Child benefit.
If you don't do a self assessment, the tax man will contact you in a few years time for a bill for £6k or so depending on how many years you have taken the child benefit
Yes we stopped claiming once it became too much of a gap to overcome with ever greater pension contributions.I say taxable "income" in quotations, as this incudes taxable benefits like company car BIK.
i.e.
Salary £45k
Bonus £5k
Company car benefit £10k
You might think you earn £50k but in the eyes of your tax man, your "income" is £60k so you have to pay back all of your Child benefit.
If you don't do a self assessment, the tax man will contact you in a few years time for a bill for £6k or so depending on how many years you have taken the child benefit
What i don't get with higher rate relief, is that it doesn't actually give you back the entire tax that was initially taken..
Example:
If a 20% tax payer pays £800 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider claws back 25% of that £800, so 100% of their gross is clawed back and goes into their pension.
If a 40% tax payer pays £600 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider assumes they're a 20% tax payer, so claws back 25% of that £600, so £750 goes into their pension. If they claim back the additional higher rate relief from HMRC they calculate this as "give back the same 20% again", so they will give you another £150. So you only get back 90% of that gross into your pension. Higher rate relief that HMRC provide should be much higher to return the full amount initially deducted through PAYE
I've never understood this.
It's far more tax efficient to salary sacrifice and get the genuine 100% of the gross going in, plus employer NI on top if they do that, as HMRC don't refund all of it back to you.
Example:
If a 20% tax payer pays £800 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider claws back 25% of that £800, so 100% of their gross is clawed back and goes into their pension.
If a 40% tax payer pays £600 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider assumes they're a 20% tax payer, so claws back 25% of that £600, so £750 goes into their pension. If they claim back the additional higher rate relief from HMRC they calculate this as "give back the same 20% again", so they will give you another £150. So you only get back 90% of that gross into your pension. Higher rate relief that HMRC provide should be much higher to return the full amount initially deducted through PAYE
I've never understood this.
It's far more tax efficient to salary sacrifice and get the genuine 100% of the gross going in, plus employer NI on top if they do that, as HMRC don't refund all of it back to you.
LowTread said:
What i don't get with higher rate relief, is that it doesn't actually give you back the entire tax that was initially taken..
Example:
If a 20% tax payer pays £800 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider claws back 25% of that £800, so 100% of their gross is clawed back and goes into their pension.
If a 40% tax payer pays £600 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider assumes they're a 20% tax payer, so claws back 25% of that £600, so £750 goes into their pension. If they claim back the additional higher rate relief from HMRC they calculate this as "give back the same 20% again", so they will give you another £150. So you only get back 90% of that gross into your pension. Higher rate relief that HMRC provide should be much higher to return the full amount initially deducted through PAYE
I've never understood this.
It's far more tax efficient to salary sacrifice and get the genuine 100% of the gross going in, plus employer NI on top if they do that, as HMRC don't refund all of it back to you.
No, I don't think that's right. For the 40% taxpayer who has paid £600 and the pension co have already claimed back £150, HMRC won't just double the £150 leaving them £100 short. They will realise they should have paid back £400 instead of £150 and give back a further £250. 20% taxpayers get 25% added back to make them whole, and 40% payers get 66.6% back to make them whole. Example:
If a 20% tax payer pays £800 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider claws back 25% of that £800, so 100% of their gross is clawed back and goes into their pension.
If a 40% tax payer pays £600 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider assumes they're a 20% tax payer, so claws back 25% of that £600, so £750 goes into their pension. If they claim back the additional higher rate relief from HMRC they calculate this as "give back the same 20% again", so they will give you another £150. So you only get back 90% of that gross into your pension. Higher rate relief that HMRC provide should be much higher to return the full amount initially deducted through PAYE
I've never understood this.
It's far more tax efficient to salary sacrifice and get the genuine 100% of the gross going in, plus employer NI on top if they do that, as HMRC don't refund all of it back to you.
It can be confusing for 40% taxpayers who make payments into a SIPP as the scheme collects the “20%” tax relief and adds this your SIPP (25% of whatever was paid in), but worth noting that the extra “20%” due to a 40% taxpayer is never actually paid into the SIPP…
The way this works is that your basic rate tax band is ‘extended’ by 125% of whatever you put in and therefore, you end up paying more tax at 20% and less tax at 40%…
E.g. £800 paid into the SIPP will produce a £200 ‘tax relief’ bump after 6 or so weeks I.e. you will have added £1,000 to your SIPP, and then, if you claim it (directly or via self assessment) your tax code will be adjusted so that going forward, they will tax your next £1,000 of income (i.e., £800 x 125%) at 20% instead of 40%.
The end result is that you have paid £800 into your SIPP which is now worth £1,000 and you will, in due course, find £200 more in your pocket as your take-home pay will be that much higher (due to less 40% tax paid).
The end result is that you have paid £600 net (£800 - £200) for a £1,000 top-up to your SIPP and that’s how one secures the full “40%” relief.
(But SS, if available, is the way to go)
The way this works is that your basic rate tax band is ‘extended’ by 125% of whatever you put in and therefore, you end up paying more tax at 20% and less tax at 40%…
E.g. £800 paid into the SIPP will produce a £200 ‘tax relief’ bump after 6 or so weeks I.e. you will have added £1,000 to your SIPP, and then, if you claim it (directly or via self assessment) your tax code will be adjusted so that going forward, they will tax your next £1,000 of income (i.e., £800 x 125%) at 20% instead of 40%.
The end result is that you have paid £800 into your SIPP which is now worth £1,000 and you will, in due course, find £200 more in your pocket as your take-home pay will be that much higher (due to less 40% tax paid).
The end result is that you have paid £600 net (£800 - £200) for a £1,000 top-up to your SIPP and that’s how one secures the full “40%” relief.
(But SS, if available, is the way to go)
Edited by Mogul on Thursday 5th January 16:58
TwigtheWonderkid said:
No, I don't think that's right. For the 40% taxpayer who has paid £600 and the pension co have already claimed back £150, HMRC won't just double the £150 leaving them £100 short. They will realise they should have paid back £400 instead of £150 and give back a further £250. 20% taxpayers get 25% added back to make them whole, and 40% payers get 66.6% back to make them whole.
Yeah but that's not what hsppensLowTread said:
What i don't get with higher rate relief, is that it doesn't actually give you back the entire tax that was initially taken..
Example:
If a 20% tax payer pays £800 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider claws back 25% of that £800, so 100% of their gross is clawed back and goes into their pension.
If a 40% tax payer pays £600 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider assumes they're a 20% tax payer, so claws back 25% of that £600, so £750 goes into their pension. If they claim back the additional higher rate relief from HMRC they calculate this as "give back the same 20% again", so they will give you another £150. So you only get back 90% of that gross into your pension. Higher rate relief that HMRC provide should be much higher to return the full amount initially deducted through PAYE
I've never understood this.
It's far more tax efficient to salary sacrifice and get the genuine 100% of the gross going in, plus employer NI on top if they do that, as HMRC don't refund all of it back to you.
The final paragraph is correct in respect of NI. The rest is complete and utter fantasy. When you file a return the actual data is submitted and the accurate and precise tax liabilities are all squared up.Example:
If a 20% tax payer pays £800 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider claws back 25% of that £800, so 100% of their gross is clawed back and goes into their pension.
If a 40% tax payer pays £600 into their pension from their net earnings (after tax), this comes from £1000 of gross earnings (before tax). Their pension provider assumes they're a 20% tax payer, so claws back 25% of that £600, so £750 goes into their pension. If they claim back the additional higher rate relief from HMRC they calculate this as "give back the same 20% again", so they will give you another £150. So you only get back 90% of that gross into your pension. Higher rate relief that HMRC provide should be much higher to return the full amount initially deducted through PAYE
I've never understood this.
It's far more tax efficient to salary sacrifice and get the genuine 100% of the gross going in, plus employer NI on top if they do that, as HMRC don't refund all of it back to you.
Edited by Kirkmoly on Thursday 5th January 21:38
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