Tax Rates 2012/13 Article Discussion
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has anyone any advice on the problem with percentages the tax man seems to have;
If you are a 40% tax payer and you earn £10,000 then you pay £4000 of tax to the tax man. The remaining £6000 you pay into a approved personal pension. The pension provider claims back 20% from the tax man £1500 so you have £7500 in your pension. So you tell the tax man that you would like the remaining tax back, don't forget to use please.
He says, well done here is another £1500 back by means of adjusting your tax code. I checked this several times. You can also use the Hargreaves Lansdown calc you will find it agrees.
Not allowed to post the link
If you add these together you get £9000. So the tax man still has £1000 of your money. Meaning the maximum tax rebate is not at the highest taxable rate but is limited to 30% for higher rate tax payers. Fortunately it is not limited for basic rate tax payers.
if this is right then the "rebate at the highest applicable rate" statement is rubbish or we are being ripped off.0 -
It's 40% of what you pay into your pension.
In the example above, you've paid £7500 into your pension pot, and got 40% relief (£3000) on that.0 -
I can see how we are playing with the percentages here. This is what is driving me nuts.
The problem with your method is that the (tax) rule is (as far as I know) that you will be credited back the tax you paid on money invested in a approved personal pension, at the highest tax margin. This is also what you are told taking out a pension.
What you have calculated is that £3000 is 40% of the value invested in the pension after tax at the basic rate is credited back. This is a different method and outcome. Hence this woudl yeild double the amount credited back at the 20% band. Not the amount of tax you paid on the money you invested in the pension plan which is (more) £4000.0 -
You wish to claim tax relief of £4000 as you are a higher rate taxpayer and this would require a contribution of £10000 as, obviously, 40% of £10000 is £4000. Or you may wish to see it as - I wish to invest £10000 into a pension scheme.
In order to do this you you have to physically invest £8000, not £7500 or £6000.
You don't invest 'the remaining £6000' as you have suggested. You cannot 'gross up' £6000 to get £10000.
The basic rate tax of £2000 will be reclaimed by the pension company bringing the contribution up to £10000. You will then claim the additional higher rate relief of £2000 through your PAYE code.
With regard to playing with percentages:
You believe that you should pay £6000 which, after basic rate tax, grosses up to £7500.
It should be £8000 which grosses up to £10000.
The difference is £2500, the tax relief on which is £1000. (at 40%). That is your difference.0 -
mumof2fromtyrone wrote: »Is it true that if you dont use your whole personal allowance ( I work part time and earn £5000), that I can pass the remainder to my partner?
If one was self employed and the other did the books, and was paid a wage by the other, reducing the profit for one, but using the tax allowance for the other, then effectively yes.
It seems strange that a couple could chose to both work part time for £10K a year and pay almost nothing in Tax each, but if one chose to stay at home whilst the other worked full time, they'd loose money. I really think a couple with children should be allowed to share tax codes.0 -
nomunnofun wrote: »You wish to claim tax relief of £4000 as you are a higher rate taxpayer and this would require a contribution of £10000 as, obviously, 40% of £10000 is £4000. Or you may wish to see it as - I wish to invest £10000 into a pension scheme.
In order to do this you you have to physically invest £8000, not £7500 or £6000.
You don't invest 'the remaining £6000' as you have suggested. You cannot 'gross up' £6000 to get £10000.
The basic rate tax of £2000 will be reclaimed by the pension company bringing the contribution up to £10000. You will then claim the additional higher rate relief of £2000 through your PAYE code.
With regard to playing with percentages:
You believe that you should pay £6000 which, after basic rate tax, grosses up to £7500.
It should be £8000 which grosses up to £10000.
The difference is £2500, the tax relief on which is £1000. (at 40%). That is your difference.
I know this may sound odd, but I do not have a figure in mind to reclaim. it kind of works backward ot that. What "I see" is putting £6000 into a pension scheme.
I get £1500 tax back into the pension scheme directly through the provider. Hence the £7500. That is what goes in.
I can reclaim further tax directly from HMRC and this does not go into the scheme. The amount I can claim back is £1500.
Maybe my understanding is flawed. "They" did say you can reclaim all your tax, paid back, at your highest marginal rate on pension contributions. This seems to be the problem as what you are saying is that it is not true.
The tax paid at 40% to end up with £6000 is £4000. So getting back £3000 seems a bit wrong.
So it appears you cannot claim back all the tax paid. What I am in need of is the "where it is written that you can reclaim all the tax paid at the highest marginal rate".0 -
I know this may sound odd, but I do not have a figure in mind to reclaim. it kind of works backward ot that. What "I see" is putting £6000 into a pension scheme.
I get £1500 tax back into the pension scheme directly through the provider. Hence the £7500. That is what goes in.
I can reclaim further tax directly from HMRC and this does not go into the scheme. The amount I can claim back is £1500.
Maybe my understanding is flawed. "They" did say you can reclaim all your tax, paid back, at your highest marginal rate on pension contributions. This seems to be the problem as what you are saying is that it is not true.
The tax paid at 40% to end up with £6000 is £4000. So getting back £3000 seems a bit wrong.
So it appears you cannot claim back all the tax paid. What I am in need of is the "where it is written that you can reclaim all the tax paid at the highest marginal rate".
In your own words £7500 goes in.
Tax on £7,500 at 40% is..............????
How much did you get back, in your own words? Hint look above in green.The only thing that is constant is change.0 -
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Cracked it;
See "The finance act 2004 part 4 Section 192 clause 4" From your local government pages legislation dot gov forslash ukpga forslash 2004
If (apart from this subsection) income tax or capital gains tax at the higher rate is chargeable in respect of any part of the individuals total income or chargeable gains for the tax year, on the making of a claim the basic rate limit for that year in the individuals case is increased by the amount of the contribution.
Or to put it another way. It is limited to the same amount as already returned at 20%. So you do not get the amount of tax you paid on the money earned (40%) you get 20% at source (to the pension provider, £1500) and the same amount £1500 by adjustment to the tax code. So you get back a total of £3000 (which is 30% of the 10,000 you earned to be able to pay £6000, nett of 40% tax, into the fund) before reliefs are applied.
So not so difficult after all. :rotfl:0 -
Hi
Can anyone advise the percentage of tax you have to pay if you have used your total allowance ?
My partner is on tax code OT and seems to be paying far too much tax.
He is on £7 hr x 35 hours and received £182.00. On the tax calculator I used on line he should have been paid £244.00.
I have queried it with HMRC, but am still confused by all the jargon.0
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