Higher Rate Tax relief on pension

stphnstevey

God this has got complicated! It's taken me several phone calls to pension provider and Self Assessment Helpline to get to this point.

I have recently gone into the higher tax band 40%. I have made pension contributions and wanted to know if I could claim 40% income tax relief on them.

I phoned Pension Company and they said that it was 'Relief at Source' and they would send me a statement of Net Payments. They claim 22% tax relief and I am intitiled to claim the rest upto 40% (ie 18%) on my SA.

Found the guidelines for SA and on p12 it says

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Relief at source
Payments to registered pension schemes
Under ‘Relief at source’ arrangements, payments to registered pension schemes are
made after tax relief at the basic rate (in 2007–08, 22%). 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 78 and multiplying the result by 100.
1
If you pay tax at 40% you are entitled to further tax relief. We will work it out and
give you credit in your tax calculation.

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Wasn't sure what boxes to complete so phoned the SA Helpline (big mistake!). Spent 10 mins argueing with the women as she said if it is 'relief at source' then the payment has been taken BEFORE tax and therefore full tax relief has been given. I cited the above from the guidleines but we went around in merry circles for 10 mins.

Eventually I was put through to an 'analyst' who said as my 'Total gross pay' and 'gross for tax' was the same figure, the payments were taken AFTER tax (Not sure why this is?). Therefore I could reclaim the 18%.

So added it to the appropriate section of the SA. Looked at the tax calculation and now says

Your basic rate limit has been increased by £XXXX to £XXXXXX for pension payments etc.
This reduces the amount of income charged to higher rates of tax.

So I suppose I still get taxed at 22% on that income, but not 40%, ie an 18% saving. The 22% payed is reclaimed by the pension company.

What a complicated way of doing it!!!!

If anyone can tell me if this is all correct, it would be much appreciated!!!

jem16

stphnstevey wrote: »

Eventually I was put through to an 'analyst' who said as my 'Total gross pay' and 'gross for tax' was the same figure, the payments were taken AFTER tax (Not sure why this is?). Therefore I could reclaim the 18%.

My pension payments are taken before I am taxed so on my P60 my total taxable pay is less than my gross pay. So I have full tax relief at source - which is probably where the other person got confused.

So added it to the appropriate section of the SA. Looked at the tax calculation and now says

Your basic rate limit has been increased by £XXXX to £XXXXXX for pension payments etc.
This reduces the amount of income charged to higher rates of tax.

So I suppose I still get taxed at 22% on that income, but not 40%, ie an 18% saving. The 22% payed is reclaimed by the pension company.

What a complicated way of doing it!!!!

If anyone can tell me if this is all correct, it would be much appreciated!!!

It is correct. I also have a personal pension and this is how I get the extra 18% tax relief.

Remember though that you will only get the extra 18% relief (now 20%) on that income which is into the higher rate tax band. That's why the basic rate limit is increase by the amount of the pension payment.

So if you paid £3000 into a pension and you were only into the higher rate tax bracket by £1000 you would only get the extra relief on the £1000.

stphnstevey

jem16 wrote: »

My pension payments are taken before I am taxed so on my P60 my total taxable pay is less than my gross pay. So I have full tax relief at source - which is probably where the other person got confused.

Why is this - ie what is the difference in taxable pay and gross pay?

Also, any ideas how this would differ for someone payed mainly by dividends - if you were paid sufficient dividends to put you into the higher rate band (which I think is 32.5% for dividends), would you be able to claim a higher than basic rate relief on pension payments?

jem16

stphnstevey wrote: »

Why is this - ie what is the difference in taxable pay and gross pay?

Gross pay is your annual salary. Taxable pay is your salary minus your pension payments (usually in the case of a company pension being paid straight from your wages before being taxed ).

Also, any ideas how this would differ for someone payed mainly by dividends - if you were paid sufficient dividends to put you into the higher rate band (which I think is 32.5% for dividends), would you be able to claim a higher than basic rate relief on pension payments?

I'm not sure on how this works.

Debt_Free_Chick

Dividends are not "pay", "salary" or "income from employment". A dividend is, essentially, investment income. You get the dividends as a result of being a shareholder, not an employee. Very many shareholders are not employees and very many employees are not shareholders.

So .... Dividends do not count as "employment income" for the purpose of pension contributions.

isasmurf

stphnstevey wrote: »

Wasn't sure what boxes to complete so phoned the SA Helpline (big mistake!). Spent 10 mins argueing with the women as she said if it is 'relief at source' then the payment has been taken BEFORE tax and therefore full tax relief has been given.

Next time you should refer her to the Pension Scheme Techincal Manual section RPSM05101320 which says
Any member making a contribution to a registered pension scheme that operates RAS must make that contribution net of basic rate tax.

jem16 wrote: »

Gross pay is your annual salary. Taxable pay is your salary minus your pension payments (usually in the case of a company pension being paid straight from your wages before being taxed ).

In the interests of being clearer, if your pension is an occupational pension than it is deducted before tax, it it is a group personal pension organised by your employer and comes out of your wages it is a relief at source scheme and contributions are deducted after tax.