Tax Band Calculation

[SunsetZed]

The budget changes to salary sacrifice and the addition of the property tax on landlords (another nail in the coffin leading to higher rents, well done Rach) got me thinking, presumably it's been set at 2% across all income tax bands to avoid issues where someone's income is partially property related and partially other income.

If someone earns £140,140 but then decides to contribute £40k to their pension (not using any salary sacrifice to keep it simple if that matters) would they get 20% tax added to their pension pot and then be able to reclaim the additional tax of 40% on £25,140 and then 45% tax on £15,000?

[SunsetZed]

Is anyone able to answer this please?

[Mazinbrum]

Maybe pay a tax advisor if you earn 140k?

[bogie]

Yes your assumption is correct, thats basically how it works.

Your pension provider will claim tax relief at 20% and add it to your SIPP funds. For the remainder at 40/45% you will get a refund through self assessment or submitting a form (if you dont do self assessment).

If its a regular pension payment you will continue for a few years you can have your tax code adjusted so the following year you get the tax relief each month.

[SunsetZed]

Sadly I don’t, I was just trying to understand how it works across tax thresholds. The question/principle would also apply if someone was earning 70k and paying 40k into a pension (could they reclaim 20k for the higher rate?). I’m just interested in trying to understand how it works.

[bogie]

Yes

You get tax relief at the rate that you pay tax, up to a maximum of £60k a year (inc base rate relief) OR your annual salary

You could pay in £48k net and SIPP provider reclaims £12k back, often credited to your account at the same time as you pay contributions in. The remainder needs to be claimed by self assessment or notify HMRC through your personal tax account online.

Lots of useful info here https://www.pensionbee.com/uk/pension-tax-relief-c...

[MaxFromage]

You get 40%/45% tax relief overall. 20% from HM Gov and 20%/25% from your tax return.

If you were a higher rate taxpayer, putting £800 into a pension would result in £1,000 being add to your pension pot and £200 tax being refunded via your tax return. Net result is a cost of £600.

[MaxFromage]

And if you are reducing your income from £140K to £100K, you will get your personal allowance back as well.

[SunsetZed]

Thanks for the answers. I was curious as, in my mind if you're taking home 100k and putting 40k into a pension then you're not a highest rate tax payer, similarly if you're taking home 30k and putting 40k into a pension you're not a higher rate tax payer but it seems like the government say that you are. That means that even though you aren't paying tax at the higher rates you do get pension top up at those rates.