Claiming Back Tax on Pension Contributions?
Discussion
New employer doesn't have pension scheme. I'm aware that this will change in the not-too-distant future but meantime I want to make contributions into a personal pension from my net salary.
My previous employer had a pension scheme with one of the big providers. I've spoken to them and I can continue to contribute personally with no management fees to pay. This is my preferred solution short term, until my new employer sorts out their scheme.
2 questions:
1) How do I claim back the tax? I'm a 40% tax payer
2) How does this work? Annual self-assessment? Increase in personal allowance? Where do the additional funds 'go'?
FWIW I was wanting to put £400 of net salary in pcm.
Many thanks.
My previous employer had a pension scheme with one of the big providers. I've spoken to them and I can continue to contribute personally with no management fees to pay. This is my preferred solution short term, until my new employer sorts out their scheme.
2 questions:
1) How do I claim back the tax? I'm a 40% tax payer
2) How does this work? Annual self-assessment? Increase in personal allowance? Where do the additional funds 'go'?
FWIW I was wanting to put £400 of net salary in pcm.
Many thanks.
As explained, for basic rate taxpayers the tax relief given on pension contributions is given in the form of an additional amount paid into the pension by the Government. In other words, the taxpayer doesn't get any sort of personal tax refund into their hand. Instead their pension fund gets extra amounts added to it.
If the taxpayer is also a Higher Rate Taxpayer, they are due additional tax relief at the higher rate. One way this is given is by the raising of the Lower Rate tax band for the individual thereby moving the point where they might have to pay 40% tax.
If a claim for Higher Rate tax relief on pension contributions is made after the end of the tax year, for instance through the submission of a Self Assessment tax return, then the taxpayer will most likely receive the tax relief in the form of a genuine tax refund.
If the taxpayer is also a Higher Rate Taxpayer, they are due additional tax relief at the higher rate. One way this is given is by the raising of the Lower Rate tax band for the individual thereby moving the point where they might have to pay 40% tax.
If a claim for Higher Rate tax relief on pension contributions is made after the end of the tax year, for instance through the submission of a Self Assessment tax return, then the taxpayer will most likely receive the tax relief in the form of a genuine tax refund.
Eric Mc said:
As explained, for basic rate taxpayers the tax relief given on pension contributions is given in the form of an additional amount paid into the pension by the Government. In other words, the taxpayer doesn't get any sort of personal tax refund into their hand. Instead their pension fund gets extra amounts added to it.
Ok, apologies for being slow here - but at 20% tax rate the tax is refunded straight into the pension pot, is that correct? So do I need to inform HMRC in advance that I'm doing this?Eric Mc said:
If the taxpayer is also a Higher Rate Taxpayer, they are due additional tax relief at the higher rate. One way this is given is by the raising of the Lower Rate tax band for the individual thereby moving the point where they might have to pay 40% tax.
If a claim for Higher Rate tax relief on pension contributions is made after the end of the tax year, for instance through the submission of a Self Assessment tax return, then the taxpayer will most likely receive the tax relief in the form of a genuine tax refund.
And this this the bit I'm unsure about. I would therefore get the tax relief on the extra, 40% bit, either as a change to the 20-40% boundary or a physical rebate?If a claim for Higher Rate tax relief on pension contributions is made after the end of the tax year, for instance through the submission of a Self Assessment tax return, then the taxpayer will most likely receive the tax relief in the form of a genuine tax refund.
My question is whether I will see the 40% bit monthly by way of a change to the 20% band or annually as a payment to me. The first payment will be in March, so just before the new tax year. Am I best to wait until April for the sake of simplicity?
K12beano said:
Very simplistically: each month pay £320 to pension provider, they claim £80 tax.
At end of year, declare pension contribution and it reduces "income" so you pay less in 40% bracket. Job jobbed.
Again, apologies for daft questions (can you tell this is all rather new to me??), I would therefore need to fill out an annual tax return to tell HMRC how much I've paid in and where to? Not even going to start on child benefit... At end of year, declare pension contribution and it reduces "income" so you pay less in 40% bracket. Job jobbed.
Believe it or not I've actually been to see a financial advisor who didn't shed that much light!
Still trying to keep things simple
Mr Scruff said:
The first payment will be in March, so just before the new tax year. Am I best to wait until April for the sake of simplicity?
....
Leaving the mechanics of tax relief aside, and forgetting about anything else, in general the best possible course is stick as much into a pension pot as soon as possible - end of story....
Mr Scruff said:
I would therefore need to fill out an annual tax return ...
As you're (expecting to be) facing 40% tax bracket you should expect to be completing self assessment return anyway. Questions like pension contributions are (or were last time i bothered to look very hard) a core part of the main form.Mr Scruff said:
Eric Mc said:
As explained, for basic rate taxpayers the tax relief given on pension contributions is given in the form of an additional amount paid into the pension by the Government. In other words, the taxpayer doesn't get any sort of personal tax refund into their hand. Instead their pension fund gets extra amounts added to it.
Ok, apologies for being slow here - but at 20% tax rate the tax is refunded straight into the pension pot, is that correct? So do I need to inform HMRC in advance that I'm doing this?Yes and no - as long as you are only a basic rate taxpayer.
Eric Mc said:
If the taxpayer is also a Higher Rate Taxpayer, they are due additional tax relief at the higher rate. One way this is given is by the raising of the Lower Rate tax band for the individual thereby moving the point where they might have to pay 40% tax.
If a claim for Higher Rate tax relief on pension contributions is made after the end of the tax year, for instance through the submission of a Self Assessment tax return, then the taxpayer will most likely receive the tax relief in the form of a genuine tax refund.
Both. If you are (just) a Basic Rate Taxpayer, the pension contribution helps raise the bar, so to speak so will mean you can earn a bit more before you hit the 40% tax threshold.If a claim for Higher Rate tax relief on pension contributions is made after the end of the tax year, for instance through the submission of a Self Assessment tax return, then the taxpayer will most likely receive the tax relief in the form of a genuine tax refund.
If you already ARE a 40% taxpayer, then the pension contribution will serve to reduce the amount of income being taxed at 40%.
But, as has been mentioned by another poster, if you are a Higher Rate Taxpayer you should really be looking to complete Self Assessment tax returns anyway.
The SA return has its benefits - the main one for PAYE taxpayers is that it allows the taxpayer to review there true tax position for any given tax year - and to notify HMRC so that any under or overpayments of tax can be corrected.
And this this the bit I'm unsure about. I would therefore get the tax relief on the extra, 40% bit, either as a change to the 20-40% boundary or a physical rebate?
Sometimes both - it depends on the amounts involved.
My question is whether I will see the 40% bit monthly by way of a change to the 20% band or annually as a payment to me. The first payment will be in March, so just before the new tax year. Am I best to wait until April for the sake of simplicity?
K12beano said:
Very simplistically: each month pay £320 to pension provider, they claim £80 tax.
At end of year, declare pension contribution and it reduces "income" so you pay less in 40% bracket. Job jobbed.
Again, apologies for daft questions (can you tell this is all rather new to me??), I would therefore need to fill out an annual tax return to tell HMRC how much I've paid in and where to? Not even going to start on child benefit... At end of year, declare pension contribution and it reduces "income" so you pay less in 40% bracket. Job jobbed.
Believe it or not I've actually been to see a financial advisor who didn't shed that much light!
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