Additional pension purchase tax relief

[rfisher]

I've asked this question before but not had a clear answer so I'm trying again.

If it doesn't work this time I'll pay someone (probably Eric) for an answer.

Figures may or may not be fictitious.

I can buy an additional £5000 per annum pension from my occupational pension provider (DB) for £100,000.

This would not exceed my annual allowance of £120,000 for the last 3 years, so I wouldn't pay tax on top of the £100,000.

What I don't know is how much tax relief I could claim.

Let's say that my taxable pay in the tax year that I make the additional pension purchase is £80,000.

What does that give me as a figure for tax relief in the £100,000?

Ta.

[rfisher]

Thanks.

I think £100,000 is considered to be net of tax so attracts a maximum of £25,000 tax relief at 20% if my earnings allow this much.

It now gets confusing, as I think that I would only be able to claim the 20% on the proportion of my taxable earnings that I pay 40% on.

Am I getting the hang of this?

[rfisher]

Yes - I think it's a good deal even without getting all the tax relief, which is why I'm giving it some serious consideration.

I expect drainpipe will be along soon to suggest that I buy a load of flats instead.

[rfisher]

PurpleMoonlight said:

As PJ RS stated, tax relief is limited to the tax you pay in the tax year the contribution is made.

Contributions to a defined benefit arrangement are normally deducted from gross pay. Are you sure the £100,000 is to be treated as a net contribution? If so, they would be reclaiming £25,000.

This would be an additional pension purchase, paid by lump sum.

You can pay in instalments but it costs more.

You can also pay via your salary pre-tax.

So is it correct that I could claim up to £25,000 tax relief, but only from my 40% taxed earnings?

[rfisher]

PurpleMoonlight said:

Is the £100,000 deemed by the pension provider a 'gross' contribution (they will not reclaim any tax) or a 'net' contribution (they will reclaim £25,000)?

I'll have to ask.