Pension contribution tax relief

[rfisher]

Yes another pension tax relief thread - hurrah.

Anyhoo, for a gross pension contribution, is tax relief calculated using the amount of the contribution, or the actual tax paid from your paye up to the amount of the contribution?

Let's assume that the contribution does not exceed either the annual allowance or my earnings in that tax year.

Ta.

[PurpleMoonlight]

If pension contributions are paid 'gross' they are deducted from gross pay before income tax is assessed on the remainder.

[rfisher]

This would be a lump sum contribution made from savings, but is apparently considered to be a gross payment for tax relief by HMRC.

Maybe because it's a DB pension.

I'm just a bit confused by how the amount of tax relief is calculated.

I think that it would be 20% of the contribution amount, and that would be deducted from my paye tax figure.

But I would have actually paid more than 20% tax on that amount of my gross earnings if the contribution was more than £33,500 due to the 40% tax threshold.

So it wouldn't be a good idea to pay more than £33,500 in any one tax year.

No?

[PurpleMoonlight]

If you are to pay a gross contribution to your DB pension arrangement you will need to claim tax relief via an annual tax return.

HMRC will deduct the contribution from your P60 earnings, calculate the tax due and refund you what you have overpaid.

The maximum tax relief is the tax you have paid so don't make a contribution greater than your taxable pay.

[rfisher]

Thanks.

I actually understood that explanation!

[sas62]

If you make a one off contribution from savings then the pension provider will claim basic rate tax from HMRC and add it to the pension.

You only need to do a tax return if you are a higher rate tax payer and need to claim back the difference between basic rate and your highest rate of tax.

So if you put in 8k then HRMC will pay the pension provider an additional 2k - so your pension gets a total 10k contribution. You do'nt need to do anything - the pension provider does this automatically.

If you are a 40% tax payer then you claim an additional 2k on your tax return. (This assumes you have paid at least 2k at higher rate tax)

[sas62]

Just to add there is a very clear pension tax relief calculator on the Hargreaves Lansdown site.

[PurpleMoonlight]

sas62 said:

If you make a one off contribution from savings then the pension provider will claim basic rate tax from HMRC and add it to the pension.

You only need to do a tax return if you are a higher rate tax payer and need to claim back the difference between basic rate and your highest rate of tax.

So if you put in 8k then HRMC will pay the pension provider an additional 2k - so your pension gets a total 10k contribution. You do'nt need to do anything - the pension provider does this automatically.

If you are a 40% tax payer then you claim an additional 2k on your tax return. (This assumes you have paid at least 2k at higher rate tax)

The OP appears to be in an occupational pension scheme that does not operate Relief at Source.