Pension tax relief, 20% or 25%??
Discussion
Croutons said:
What’s your starting point?
You pay in £8, they reclaim £2. Which is 25% of the £8.
If you start from the gross contribution (£10) you only paid in 80%, ie £8, ie 20% of the £10 is reclaimed.
They’re doing it right.
I did a test of £50, they said that will be topped up by £12.50 ie 25% which means £62.50 will be going in whereas I would have thought if you paid in £50 the final total amount after tax relief would be £60?You pay in £8, they reclaim £2. Which is 25% of the £8.
If you start from the gross contribution (£10) you only paid in 80%, ie £8, ie 20% of the £10 is reclaimed.
They’re doing it right.
It's the gross/ net distinction:
You wanted to pay £62.50 into your pension. You've been taxed at 20% on that already. Which is £12.50.
So to pay £62.50 into your pension you have to put in £50, and get that 20% (of the gross contribution) tax back.
Stop thinking of the £12.50 as a % of the £50. As much as it is, it isn't- the 20% reclaimed is 20% of the gross sum into the pension.
It just happens to also work out as a convenient % of what you put in too, which is annoying.
They're not overclaiming. They can't.
You wanted to pay £62.50 into your pension. You've been taxed at 20% on that already. Which is £12.50.
So to pay £62.50 into your pension you have to put in £50, and get that 20% (of the gross contribution) tax back.
Stop thinking of the £12.50 as a % of the £50. As much as it is, it isn't- the 20% reclaimed is 20% of the gross sum into the pension.
It just happens to also work out as a convenient % of what you put in too, which is annoying.
They're not overclaiming. They can't.
Croutons said:
It's the gross/ net distinction:
You wanted to pay £62.50 into your pension. You've been taxed at 20% on that already. Which is £12.50.
So to pay £62.50 into your pension you have to put in £50, and get that 20% (of the gross contribution) tax back.
Stop thinking of the £12.50 as a % of the £50. As much as it is, it isn't- the 20% reclaimed is 20% of the gross sum into the pension.
It just happens to also work out as a convenient % of what you put in too, which is annoying.
They're not overclaiming. They can't.
Ok thanks, I think I see what you mean now You wanted to pay £62.50 into your pension. You've been taxed at 20% on that already. Which is £12.50.
So to pay £62.50 into your pension you have to put in £50, and get that 20% (of the gross contribution) tax back.
Stop thinking of the £12.50 as a % of the £50. As much as it is, it isn't- the 20% reclaimed is 20% of the gross sum into the pension.
It just happens to also work out as a convenient % of what you put in too, which is annoying.
They're not overclaiming. They can't.
.Croutons said:
It's the gross/ net distinction:
You wanted to pay £62.50 into your pension. You've been taxed at 20% on that already. Which is £12.50.
So to pay £62.50 into your pension you have to put in £50, and get that 20% (of the gross contribution) tax back.
Stop thinking of the £12.50 as a % of the £50. As much as it is, it isn't- the 20% reclaimed is 20% of the gross sum into the pension.
It just happens to also work out as a convenient % of what you put in too, which is annoying.
They're not overclaiming. They can't.
To the OP - you get good, free advice on this forum You wanted to pay £62.50 into your pension. You've been taxed at 20% on that already. Which is £12.50.
So to pay £62.50 into your pension you have to put in £50, and get that 20% (of the gross contribution) tax back.
Stop thinking of the £12.50 as a % of the £50. As much as it is, it isn't- the 20% reclaimed is 20% of the gross sum into the pension.
It just happens to also work out as a convenient % of what you put in too, which is annoying.
They're not overclaiming. They can't.
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