Limiting income via pension
Discussion
No.
Assuming you are making a personal contribution out of net earnings then you pay in 80% of the total gross amount you want. In your example that's £8,000 paid in by you. Then the pension provider reclaims the 20% basic rate tax relief and adds it into your pension. Anything extra in terms of tax relief is claimed by you through self assessment and comes back in due course as cash in your pocket.
Assuming you are making a personal contribution out of net earnings then you pay in 80% of the total gross amount you want. In your example that's £8,000 paid in by you. Then the pension provider reclaims the 20% basic rate tax relief and adds it into your pension. Anything extra in terms of tax relief is claimed by you through self assessment and comes back in due course as cash in your pocket.
That’s the case with a SIPP but with the AVC’s I can make a one off lump sum payment which is paid gross, they don’t claim the 20%.
So for 10k if I paid 10k I’ll claim £4000 back in self assessment. Does this amount claimed back put me over the 100k category ?
Basically I’m wanting to add to pension and not hit the income threshold for 100k, loosing next years tax free allowance.
Is there any calculators out there to use?
So for 10k if I paid 10k I’ll claim £4000 back in self assessment. Does this amount claimed back put me over the 100k category ?
Basically I’m wanting to add to pension and not hit the income threshold for 100k, loosing next years tax free allowance.
Is there any calculators out there to use?
If you pay a lump sum AVC via payroll tax relief is automatically applied. You do not have to do anything to get the full tax relief (even if you are a higher rate tax payer). This should always be the preferred route.
Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
Mogul said:
If you pay a lump sum AVC via payroll tax relief is automatically applied. You do not have to do anything to get the full tax relief (even if you are a higher rate tax payer). This should always be the preferred route.
Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
This is my understanding aswellAlternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
Mogul said:
If you pay a lump sum AVC via payroll tax relief is automatically applied. You do not have to do anything to get the full tax relief (even if you are a higher rate tax payer). This should always be the preferred route.
Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
This is exactly what I'm doing after getting advice from various professionals. Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
Mogul said:
If you pay a lump sum AVC via payroll tax relief is automatically applied. You do not have to do anything to get the full tax relief (even if you are a higher rate tax payer). This should always be the preferred route.
Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
You need to determine how the pension contribution has been treated through your payroll.Alternatively, you can pay a lump sum AVC by bank transfer, however as this will not be transacted via payroll, it will be your responsibility to reclaim the tax back.
In simple terms if you tell payroll to dump £10k gross in on your behalf, that should reduce your taxable income by £10k
If you pay by bank transfer, you would pay £8k in and the scheme would claim £2k from HMRC on your behalf (I.e. the scheme gets your £8k + £2 from HMRC) but if you want to claim the extra £2k (in cash) then that would be for you to arrange via Self Assessment.
It is possible that the payment has been deducted from you net pay, this is confusingly referred to as "relief at source", if this is the case then a tax return or phone call/letter to HMRC will be required to get a refund of the higher rate relief. If the payment is deducted from gross pay then no further action needed.
Agreed.
‘Relief at source’ means some tax relief will be added at the destination (i.e., within the pension scheme) but perhaps more common where the majority are low earners.
Saying that; firms don’t always get this right…
https://www.rsmuk.com/ideas-and-insights/employmen...
‘Relief at source’ means some tax relief will be added at the destination (i.e., within the pension scheme) but perhaps more common where the majority are low earners.
Saying that; firms don’t always get this right…
https://www.rsmuk.com/ideas-and-insights/employmen...
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