Pension contribution tax relief

[leosayer]

In the telegraph at the weekend they stated the following figures:

£20,000 invested into a SIPP attracts basic rate tax relief of £5,641 and a further tax relief of 18% ie. £4,615 for higher rate tax payers, making a total of £30,526.

Are these figures correct? The higher rate one looks wrong to me.

[Tuscanator]

HRT is 40%, you get basic rate tax relief of 22% and then the extra bit on top hence 18%.

hope that helps.

[johnp68]

It's explained on www.hmrc.gov.uk/manuals/rpsmmanual/RPSM05201050.htm

Just multiply the figures shown on the hmrc page by 20,000/780 to get the same figures as quoted in the Telegraph

[leosayer]

Thanks for the link, using that formula, I make it that the telegraph should have stated the figures as follows:

20,000 Paid in
7,333 Relief at source 22%
6,000 Reclaim 18%
=======
33,333 total contribution

[percy flage]

No, the extra tax relief is 18% of the "grossed up" contribution.

If the gross contribution is £20,000 the total relief (40%) is £8,000.

You actually pay £15,600 as a net of 22% tax relief premium and the balance of £3,600 (18%) is claimed through your self assessment tax return.

That'll be £75 please.

ETA: If your net contribution is £20,000 the gross is £25,641. (20,000/.78) Total relief is £10256.40, (25641 x 0.4) so balance of 18% relief would be £4615.38

Edited by percy flage on Thursday 29th March 10:49

[Eric Mc]

And, as Gordon "forgot" to mention in his Budget Speech, the government's contribution to your pension will fall when the 22% tax band reduces to 20% on 6 April 2008.

Another blow to the pension industry.

[leosayer]

I understand it now, thanks for explaining.

So from April 2008, higher rate tax payer can increase the amount they reclaim from 18% to 20%. Less in the pension, more in the pocket.

[Eric Mc]

Correct.