Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    jonny2510
    Do pension contributions affect the tax you pay (Tax Return)
    • #1
    • 8th Dec 11, 7:28 AM
    Do pension contributions affect the tax you pay (Tax Return) 8th Dec 11 at 7:28 AM
    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?
Page 1
  • dunstonh
    • #2
    • 8th Dec 11, 8:54 AM
    • #2
    • 8th Dec 11, 8:54 AM
    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.

    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.
  • jonny2510
    • #3
    • 8th Dec 11, 7:42 PM
    • #3
    • 8th Dec 11, 7:42 PM
    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?
  • jem16
    • #4
    • 8th Dec 11, 8:10 PM
    • #4
    • 8th Dec 11, 8:10 PM
    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?
    Originally posted by jonny2510
    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
  • jonny2510
    • #5
    • 8th Dec 11, 8:16 PM
    • #5
    • 8th Dec 11, 8:16 PM

    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.
    Originally posted by jem16
    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"
  • jem16
    • #6
    • 8th Dec 11, 8:23 PM
    • #6
    • 8th Dec 11, 8:23 PM
    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"
    Originally posted by jonny2510
    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.

    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.
  • jonny2510
    • #7
    • 8th Dec 11, 8:46 PM
    • #7
    • 8th Dec 11, 8:46 PM
    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.
    Originally posted by jem16
    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)
    • Linton
    • By Linton 8th Dec 11, 9:18 PM
    • 5,593 Posts
    • 5,032 Thanks
    Linton
    • #8
    • 8th Dec 11, 9:18 PM
    • #8
    • 8th Dec 11, 9:18 PM
    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)
    Originally posted by jonny2510

    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.
  • jem16
    • #9
    • 8th Dec 11, 9:19 PM
    • #9
    • 8th Dec 11, 9:19 PM
    they're asking in case I'm a higher rate tax payer so they can increase the contributions
    Originally posted by jonny2510
    They are asking so that they can give you the extra tax relief, if any, due. It does not increase your contributions.
  • jonny2510
    Sorry, I misread the quote. That does make perfect sense.

    Thanks for your patience, we got there in the end!
  • dunstonh
    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.
Welcome to our new Forum!

Our aim's to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

1,436Posts Today

7,189Users online

Martin's Twitter