Self Assessment and pension contributions
Discussion
I thought I'd got this worked out, but the self assessment calculation doesn't agree with my own workings, and I'm wondering what I've misunderstood.
I made some large pension contributions in 22-23 and I'm a higher rate tax payer. In the tax calculation it states (after working out total pay + interest - personal allowance)
How we have worked out your income tax
Your basic rate limit has been increased by £25,000 and £75.00 to £62,775 for pension payments and Gift Aid payments.
It then calculates my basic rate of tax payable as £62,775 x 20% = £12,555
Isn't the basic rate limit £50,270 and my pension contributions (with tax already claimed at 20%) £25,000 + £75.00 Gift Aid = £75345 ?
Otherwise (it seems to me) I'm paying higher tax rates on income that has been invested in a pension.
What have I misunderstood? All comments appreciated. Thanks
I made some large pension contributions in 22-23 and I'm a higher rate tax payer. In the tax calculation it states (after working out total pay + interest - personal allowance)
How we have worked out your income tax
Your basic rate limit has been increased by £25,000 and £75.00 to £62,775 for pension payments and Gift Aid payments.
It then calculates my basic rate of tax payable as £62,775 x 20% = £12,555
Isn't the basic rate limit £50,270 and my pension contributions (with tax already claimed at 20%) £25,000 + £75.00 Gift Aid = £75345 ?
Otherwise (it seems to me) I'm paying higher tax rates on income that has been invested in a pension.
What have I misunderstood? All comments appreciated. Thanks
AnotherGuy said:
I thought I'd got this worked out, but the self assessment calculation doesn't agree with my own workings, and I'm wondering what I've misunderstood.
I made some large pension contributions in 22-23 and I'm a higher rate tax payer. In the tax calculation it states (after working out total pay + interest - personal allowance)
How we have worked out your income tax
Your basic rate limit has been increased by £25,000 and £75.00 to £62,775 for pension payments and Gift Aid payments.
It then calculates my basic rate of tax payable as £62,775 x 20% = £12,555
Isn't the basic rate limit £50,270 and my pension contributions (with tax already claimed at 20%) £25,000 + £75.00 Gift Aid = £75345 ?
Otherwise (it seems to me) I'm paying higher tax rates on income that has been invested in a pension.
What have I misunderstood? All comments appreciated. Thanks
The basic rate limit is indeed £50,270 but you have a personal allowance of £12,570.I made some large pension contributions in 22-23 and I'm a higher rate tax payer. In the tax calculation it states (after working out total pay + interest - personal allowance)
How we have worked out your income tax
Your basic rate limit has been increased by £25,000 and £75.00 to £62,775 for pension payments and Gift Aid payments.
It then calculates my basic rate of tax payable as £62,775 x 20% = £12,555
Isn't the basic rate limit £50,270 and my pension contributions (with tax already claimed at 20%) £25,000 + £75.00 Gift Aid = £75345 ?
Otherwise (it seems to me) I'm paying higher tax rates on income that has been invested in a pension.
What have I misunderstood? All comments appreciated. Thanks
Somebody said:
The basic rate limit is indeed £50,270 but you have a personal allowance of £12,570.
Agreed, but in this section of the calculation, it's already deducted the personal allowance, to arrive at a "Total Income on which tax is due" so the basic and higher rates apply to this remaining amount. Apologies if I didn't make this clear.Presumably you have already got 20% tax relief. Your allowance has been raised to give you a further 20% tax relief i.e. you pay 20% tax instead of 40% tax on your income.
This in effect gives you 40% tax relief by means of 20% + 20%.
This also explains why the calculation only gives you half the values you are expecting.
(SIPP and gift aid normally gives you 20% credit at source)
This in effect gives you 40% tax relief by means of 20% + 20%.
This also explains why the calculation only gives you half the values you are expecting.
(SIPP and gift aid normally gives you 20% credit at source)
leef44 said:
Presumably you have already got 20% tax relief. Your allowance has been raised to give you a further 20% tax relief i.e. you pay 20% tax instead of 40% tax on your income.
This in effect gives you 40% tax relief by means of 20% + 20%.
Absolutely agree. That's my understanding as well. I contributed £20k to a pension, which has £5k tax relief added. I now need an additional £20k of my income to be taxed at basic rate, instead of higher rate to get my other 20% tax relief.This in effect gives you 40% tax relief by means of 20% + 20%.
leef44 said:
This also explains why the calculation only gives you half the values you are expecting.
Why only half? This is where my confusion lies. Shouldn't I get £50,270 + £20,000 allowance? (I realise I incorrectly quoted £25k in my original message)Because with a personal contribution (as you have made), the pension provider will claim 20% basic rate relief from HMRC and add it to your pension.
The claim you are making is for the higher rate relief, so the difference between 20% and 40% - i.e. 20%.
Check your pension statement, it will show this.
The claim you are making is for the higher rate relief, so the difference between 20% and 40% - i.e. 20%.
Check your pension statement, it will show this.
The basic rate tax band of £37,700 (this plus personal allowance equals the basic rate limit you mention) has been increased by the gross value (x1.25) of the pension contributions. RAS has allowed the pension provider to claim the basic rate tax, and the extension of your basic rate band will move £25k of higher rate income into basic rate i.e. 20% lower tax rate to provide tax relief at the 40% (20% RAS + 20% on band extension).
I'm sure someone will be along to word it much more elegantly!
I'm sure someone will be along to word it much more elegantly!
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