Main site > MoneySavingExpert.com Forums > Essential Money > Pensions, Annuities & Retirement Planning > Do pension contributions affect the tax you pay (... (Page 1)

IMPORTANT! This is MoneySavingExpert's open forum - anyone can post

Please exercise caution & report any spam, illegal, offensive, racist, libellous post to forumteam@moneysavingexpert.com

  • Be nice to all MoneySavers
  • All the best tips go in the MoneySavingExpert weekly email

    Plus all the new guides, deals & loopholes

  • No spam/referral links
or Login with Facebook
Do pension contributions affect the tax you pay (Tax Return)
Closed Thread
Views: 843
Thread Tools Search this Thread Display Modes
# 1
jonny2510
Old 08-12-2011, 7:28 AM
MoneySaving Stalwart
 
Join Date: Nov 2005
Posts: 649
Default Do pension contributions affect the tax you pay (Tax Return)

I seem to remember a question on the tax return about pension contributions (other than those taken directly by the employer).

Do pension contributions in any way affect the tax you owe?

I'm assuming the question is more so HMRC can check that they haven't paid more contributions towards your pension than you have paid in tax in that year - though just wanted to check what I was letting myself into before starting a pension!

(Basic rate tax payer btw)

Can anyone advise?
jonny2510 is offline
Report Post
# 2
dunstonh
Old 08-12-2011, 8:54 AM
Mega Magnificent Maxi-Meticulous Uber-MoneySaving Magnate
 
Join Date: Apr 2004
Location: Norfolk
Posts: 74,451
Default

Quote:
Do pension contributions in any way affect the tax you owe?
yes.

Most, but not all, pensions deal with basic rate tax relief at source (pre 1988 retirement annuity contracts dont for example and need to show via your tax code or tax return to get the tax relief). Also, if you are a higher rate taxpayer you need to get your higher rate relief via your tax return or tax code.

Quote:
I'm assuming the question is more so HMRC can check that they haven't paid more contributions towards your pension than you have paid in tax in that year - though just wanted to check what I was letting myself into before starting a pension!
That doesnt require your tax return. They monitor that via your NI number.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
dunstonh is online now
Report Post
The Following User Says Thank You to dunstonh For This Useful Post: Show me >>
# 3
jonny2510
Old 08-12-2011, 7:42 PM
MoneySaving Stalwart
 
Join Date: Nov 2005
Posts: 649
Default

Thanks dunstonh, though I don't quite understand (I suspect it's the way I worded the question rather than your answer!)

If as a basic rate tax payer I make contributions to say a SIPP, and I declare these on my tax return, is this likely to mean (at the end of the tax return calculation) I'll owe more tax, less tax or the same amount?
jonny2510 is offline
Report Post
# 4
jem16
Old 08-12-2011, 8:10 PM
Deliciously Dedicated Diehard MoneySaving Devotee
 
Join Date: Aug 2005
Location: South Lanarkshire
Posts: 15,097
Default

Quote:
Originally Posted by jonny2510 View Post
If as a basic rate tax payer I make contributions to say a SIPP, and I declare these on my tax return, is this likely to mean (at the end of the tax return calculation) I'll owe more tax, less tax or the same amount?
As a basic rate taxpayer you will have no more and no less tax to pay.

When you pay into a SIPP, the pension provider adds basic rate tax relief automatically. So for every £80 contribution you make, £100 will be added to the SIPP.

You shouldn't be entering your pension contributions on your tax return as a basic rate taxpayer as tax relief is being handled by the pension provider. It's only higher rate taxpayers that need to claim the extra relief through their tax return.

http://www.hmrc.gov.uk/incometax/relief-pension.htm
jem16 is offline
Report Post
# 5
jonny2510
Old 08-12-2011, 8:16 PM
MoneySaving Stalwart
 
Join Date: Nov 2005
Posts: 649
Default

Quote:
Originally Posted by jem16 View Post

You shouldn't be entering your pension contributions on your tax return as a basic rate taxpayer as tax relief is being handled by the pension provider.
Thanks Jem, it was the following question I was referring to:

"Payments to registered pension schemes where basic rate
tax relief will be claimed by your pension provider (called
‘relief at source’). Enter the payments and basic rate tax"
jonny2510 is offline
Report Post
# 6
jem16
Old 08-12-2011, 8:23 PM
Deliciously Dedicated Diehard MoneySaving Devotee
 
Join Date: Aug 2005
Location: South Lanarkshire
Posts: 15,097
Default

Quote:
Originally Posted by jonny2510 View Post
Thanks Jem, it was the following question I was referring to:

"Payments to registered pension schemes where basic rate
tax relief will be claimed by your pension provider (called
‘relief at source’). Enter the payments and basic rate tax"
Ok fair enough - never had to complete a tax return as a basic rate taxpayer but presumably you are not on PAYE.

From HMRC guidelines.

Quote:
Relief at source
Box 1 Payments to registered pension schemes
Under ‘relief at source’ arrangements, payments to registered pension schemes are made after tax relief at the basic rate (20% in 2010–11). The pension provider will have claimed basic rate tax relief on your behalf and added it to your pension fund. You will have made a ‘net’ payment. You should enter the gross amount in box 1; that is, the amount you paid plus the tax relief.
These amounts may be on any pension certificate or receipt you get from the administrator, or you can work it out by dividing the amount you actually
paid by 80 and multiplying the result by 100.
If you pay tax at 40%, or both 40% and 50%, you are entitled to further tax relief. We will work it out and give you credit in your tax calculation.
http://www.hmrc.gov.uk/worksheets/sa150.pdf

The end result is that as a basic rate taxpayer it will not alter the amount of tax you have to pay.
jem16 is offline
Report Post
The Following User Says Thank You to jem16 For This Useful Post: Show me >>
# 7
jonny2510
Old 08-12-2011, 8:46 PM
MoneySaving Stalwart
 
Join Date: Nov 2005
Posts: 649
Default

Quote:
Originally Posted by jem16 View Post
Ok fair enough - never had to complete a tax return as a basic rate taxpayer but presumably

[...]

The end result is that as a basic rate taxpayer it will not alter the amount of tax you have to pay.
Yup, I'm a basic rate taxpayer (and accidental landlord!)

Thanks for that though, it makes sense now (they're asking in case I'm a higher rate tax payer so they can increase the contributions)
jonny2510 is offline
Report Post
# 8
Linton
Old 08-12-2011, 9:18 PM
Fantastically Fervent MoneySaving Super Fan
 
Join Date: Aug 2008
Posts: 4,533
Default

Quote:
Originally Posted by jonny2510 View Post
Yup, I'm a basic rate taxpayer (and accidental landlord!)

Thanks for that though, it makes sense now (they're asking in case I'm a higher rate tax payer so they can increase the contributions)

Not quite. If you are a higher rate tax payer you will still only get the basic rate rebate added to your pension. The higher rate part will be taken off the tax you are due to pay in the year, so is effectively returned outside the pension.
Linton is offline
Report Post
The Following User Says Thank You to Linton For This Useful Post: Show me >>
# 9
jem16
Old 08-12-2011, 9:19 PM
Deliciously Dedicated Diehard MoneySaving Devotee
 
Join Date: Aug 2005
Location: South Lanarkshire
Posts: 15,097
Default

Quote:
Originally Posted by jonny2510 View Post
they're asking in case I'm a higher rate tax payer so they can increase the contributions
They are asking so that they can give you the extra tax relief, if any, due. It does not increase your contributions.
jem16 is offline
Report Post
The Following User Says Thank You to jem16 For This Useful Post: Show me >>
# 10
jonny2510
Old 08-12-2011, 9:33 PM
MoneySaving Stalwart
 
Join Date: Nov 2005
Posts: 649
Default

Sorry, I misread the quote. That does make perfect sense.

Thanks for your patience, we got there in the end!
jonny2510 is offline
Report Post
# 11
dunstonh
Old 08-12-2011, 9:38 PM
Mega Magnificent Maxi-Meticulous Uber-MoneySaving Magnate
 
Join Date: Apr 2004
Location: Norfolk
Posts: 74,451
Default

They are also asking to capture those paying S226 retirement annuity contracts (the type of pension plan that existed prior to 1988). They are paid gross and require you to claim the tax relief back via tax return (or tax code). Like many of the questions on the HMRC tax return, they can cover multiple scenarios and very often most will not apply or will end up just being information only.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
dunstonh is online now
Report Post
Closed Thread

Bookmarks
 
 




Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off

 Forum Jump  

Contact Us - MoneySavingExpert.com - Archive - Privacy Statement - Top

Powered by vBulletin® Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.

All times are GMT +1. The time now is 9:24 PM.

 Forum Jump  

Free MoneySaving Email

Top deals: Week of 17 September 2014

Get all this & more in MoneySavingExpert's weekly email full of guides, vouchers and Deals

GET THIS FREE WEEKLY EMAIL Full of deals, guides & it's spam free

Latest News & Blogs

Martin's Twitter Feed

profile

Cheap Travel Money

Find the best online rate for holiday cash with MSE's TravelMoneyMax.

Find the best online rate for your holiday cash with MoneySavingExpert's TravelMoneyMax.

TuneChecker Top Albums

  • ALT-JTHIS IS ALL YOURS
  • THE SCRIPTNO SOUND WITHOUT SILENCE
  • APHEX TWINSYRO

MSE's Twitter Feed

profile
Always remember anyone can post on the MSE forums, so it can be very different from our opinion.
We use Skimlinks and other affiliated links in some of our boards, for some of our users.