Started my pension

brianrhill

paying in 37% of your gross salary is not higher rate tax relief. For instance:

Gross salary:£50,000
Pension

jem16

brianrhill wrote: »

paying in 37% of your gross salary is not higher rate tax relief. For instance:

Gross salary:£50,000
Pension

Sorry - I don't follow.

On a £50k salary a little over £6k would be at higher rate so paying in 37% would attract some higher rate tax relief.

brianrhill

oops, lets try again!

assuming pension contributions are made from gross pay (top of the wage slip), not net pay (bottom of the wage slip)
gross salary: £50000
pension contribution: 37% = £18,500
includes 40% tax relief of = £7,400
net cost to individual = £11,100

if it's net pay, then:
gross salary: £50,000
37% of gross salary, paid from net salary £18,500 (grossed up)
20% tax relief @ source £3,700
20% highr rate tax relief through self assessment, rebates £3,700
net cost to individual = £11,100

I think there is confusion between contributing a % of salary, and the tax relief within that, and whether it's at source or rebated though self assessment. But if your income is that of a basic rate tax payer, you only get basic rate relief. If you're a high rate tax payer, you get high rate relief. It's either 20% or 40%, there's no nearly.

jem16

brianrhill wrote: »

But if your income is that of a basic rate tax payer, you only get basic rate relief. If you're a high rate tax payer, you get high rate relief. It's either 20% or 40%, there's no nearly.

Yes I understand all that.

However I think the point sandsy was trying to make is by making extra pension contributions he is effectively making himself a basic rate taxpayer as he no longer pays higher rate tax on his income.

lvader

brianrhill wrote: »

. But if your income is that of a basic rate tax payer, you only get basic rate relief. If you're a high rate tax payer, you get high rate relief. It's either 20% or 40%, there's no nearly.

You can set yourself up so that all your regular income is taxed at basic rate but you get high rate tax relief on your pension contributions through your PAYE tax code.

lvader

jem16 wrote: »

Yes I understand all that.

However I think the point sandsy was trying to make is by making extra pension contributions he is effectively making himself a basic rate taxpayer as he no longer pays higher rate tax on his income.

This is correct.

sandsy

It's an occupational money purchase scheme through salary sacrifice.

The 37% comes out at the top of my payslip and after that, my remaining gross salary (which is subject to tax and NI) is just below the higher rate limit so I have no need to fill in tax returns.

So I still reckon I'm getting 40% tax relief because all of that money would be subject to 40% tax if I took it as income.

If I had no occupatioanl pension but took the net income generated by that portion of my salary then grossed it up at 40%, it comes out the same as the my gross contribution.

jem16

sandsy wrote: »

.

So I still reckon I'm getting 40% tax relief because all of that money would be subject to 40% tax if I took it as income.

You are getting 40% tax relief.

brianrhill

jem16 wrote: »

Yes I understand all that.

However I think the point sandsy was trying to make is by making extra pension contributions he is effectively making himself a basic rate taxpayer as he no longer pays higher rate tax on his income.

I understand that - effectively, sandsy is extending his/her personal allowance by way of pension contributions. It doesn't change the fact that sandsy won't be getting back the additional 20% of higher rate tax relief that they otherwise would have got subsequent to putting in their self assessment.

If you haven't paid high rate tax, you can't claim it back - you can't get a rebate of something you've never had! Therefore, sandsy will only get tax relief at 20%.

lvader

You are getting the 40% tax relief, the fact that you get it through a higher tax code is simply a technicality.