Pension and tax relief

[RizzoTheRat]

Trying to get my head around tax and pensions. Am I right in thinking that I don't pay tax on anything I pay in to a pension?

If so, as a higher rate tax payer, if I were to pay a lump sum of say £1000 in to a private pension at the end of the year, do I:
a) Pay £600 and pension fund get the £400 that I've paid in tax back off the government
b) Pay £1000 in to the pension and then get a tax rebate of £400 when I declare it on my self assesment
c) None of the above

Moira's wrong, tax can be taxing.

[Wings]

You pay Income Tax on your earnings before any pension contribution, but the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot. If you pay tax at higher rate, you can claim the difference through your tax return or by telephoning or writing to HMRC. If you're an additional rate taxpayer you'll have to claim the difference through your tax return.

So in box One on page 4 of 16 of the Self Assessment, on would put the gross amount of pension payment AT the standard rate of tax, so on a payment a tax payer pays to a pension scheme of 2880.00, that tax payer will put 3600.00 (3600.00 divided by 5 =20% = 720.00)

http://www.hmrc.gov.uk/incometax/relief-pension.ht...

[RizzoTheRat]

Thanks.

So if I wanted to get £1000 in my private pension I pay them £800, the government puts in £200, I declare £1000 on my tax return and I get a tax rebate of £200 meaning it's cost me £600 to get £1000 in the fund? Or have I got this completely wrong?

[Eric Mc]

Every taxpayer gets automatic basic rate tax relief on their pension contributions. The tax relief is given directly by HMRC to the pension company, so you do not get it into your hands. Instead, it gowes to build up your pension fund faster than it otherwise would.

If you are a Higher Rate Taxpayer, you will be entited to further tax relief at the higher rates. You have to make a separate claim for this as it is NOT autrtomatic (except in some circumstances). The way to do this is to complete a Self Assessment tax return AFTER the end of the tax year for which you want to make a claim.
This tax relief WILL be given to you directly by HMRC. They will either give you an actual tax refund or they may adjust your current year tax coding to allow you to get your refund in the form of reduced monthly PAYE deductions in the current tax year.

[ukshooter]

The common way for the relief to be given is by increasing your 20 % tax band. This effectively gives you the extra tax relief.