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  • FIRST POST
    • joeowens10
    • By joeowens10 15th Mar 17, 2:50 PM
    • 1Posts
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    joeowens10
    Adiitional payment into DC pension scheme
    • #1
    • 15th Mar 17, 2:50 PM
    Adiitional payment into DC pension scheme 15th Mar 17 at 2:50 PM
    I have recently converted a DB to a DC pension. My marginal tax rate is 40%. I am thinking of making a substantial additional contribution in this tax year. I am aware of the limiting rules and carry forward rules.


    Employee and employer contributions made through payroll are paid gross into the pension, however. If wish to make additional payments, 20% tax relief is applied at source, and I have to claim back the other 20% via tax return.


    I have 2 questions, first, if I claim back via tax return, is the credit returned as cash, or paid into the scheme? I have not seen this mentioned anywhere. If it is returned as cash that seems a bit strange, as it could then be paid into the pension to get additional relief.


    Second question is more generic, about the 40% relief. Is 40% relief (20% to be reclaimed), given on everything, paid in,within the limits of £40,000 or you salary? Only a very small portion of your salary might be actually taxed at 40%. Also surely the total relief given cannot exceed the actual amount of tax paid in the year of the return?


    Sorry for such basic questions, I have not found definitive answers elsewhere.


    Thanks,


    Joe
Page 1
    • kidmugsy
    • By kidmugsy 15th Mar 17, 3:30 PM
    • 9,317 Posts
    • 6,109 Thanks
    kidmugsy
    • #2
    • 15th Mar 17, 3:30 PM
    • #2
    • 15th Mar 17, 3:30 PM
    I have 2 questions, first, if I claim back via tax return, is the credit returned as cash, or paid into the scheme?
    Originally posted by joeowens10
    You'll get it either as cash or by an adjustment to your tax code. It doesn't go into the pension.


    Only a very small portion of your salary might be actually taxed at 40%.
    Originally posted by joeowens10
    That's the bit you get the 40% relief on.
    • LXdaddy
    • By LXdaddy 15th Mar 17, 6:14 PM
    • 658 Posts
    • 400 Thanks
    LXdaddy
    • #3
    • 15th Mar 17, 6:14 PM
    • #3
    • 15th Mar 17, 6:14 PM
    Building on kidmugsy's reply...
    If you have £10,000 left in your allowance (as the gross amount) then you can do an additional contribution of £8,000 (from your after tax income) which will be grossed up inside the pension scheme to £10,000. You will get £2,000 refunded to you by HMRC - either as cash or by adjustment of tax code.

    So you will effectively have put £6,000 in to the pension which has increased by £10,000
    • Lorian
    • By Lorian 15th Mar 17, 6:51 PM
    • 3,976 Posts
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    Lorian
    • #4
    • 15th Mar 17, 6:51 PM
    • #4
    • 15th Mar 17, 6:51 PM
    and remember on the tax return the box that says "personal contributions that had tax relief in the scheme" is the gross amount. IE what you paid in plus the basic rate tax relief (In the example above it's £10K - IE £8K+25%)
    • Dazed and confused
    • By Dazed and confused 15th Mar 17, 6:52 PM
    • 1,371 Posts
    • 565 Thanks
    Dazed and confused
    • #5
    • 15th Mar 17, 6:52 PM
    • #5
    • 15th Mar 17, 6:52 PM
    Building on LXdaddy's reply.....

    Not everyone will get the additional £2000 from HMRC, as you had realised from your original post the higher rate tax relief is limited by the amount of higher rate tax you would actually pay so some will receive nothing extra
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