Started my pension

brianrhill

apologies guys, I was away from the office yesterday.

Essentially, you receive tax relief equivalent to the amount of tax you have paid, so it is proportional. You can't recieve high rate tax relief on pension contributions if you're not a high rate tax payer, and you only receive high rate tax relief equivalent to the amount of high rate tax you have paid through earnings, which in other words means that you recieve basic rate relief at source on all contributions, and high rate relief on some contributions where income is taxed at high rate.

We've kind of all been barking up the same tree. There are differences when it comes to dividend income (taxed at a different rate to your earned income and is not classed as 'relevant earnings' for pension contributions), which is why it's important to try and keep them as separate calculations.

You get 20% tax relief, then 40% tax relief - granted if you add these up over the year it may appear that you've recieved 37% tax relief, and your higher rate income tax may also reduce to effectively give what you may view as tax relief on your income, butmy view is that just confuses the issue - it's better not to entwine terminology!

chucknorris

brianrhill wrote: »

apologies guys, I was away from the office yesterday.

Essentially, you receive tax relief equivalent to the amount of tax you have paid, so it is proportional. You can't recieve high rate tax relief on pension contributions if you're not a high rate tax payer, and you only receive high rate tax relief equivalent to the amount of high rate tax you have paid through earnings, which in other words means that you recieve basic rate relief at source on all contributions, and high rate relief on some contributions where income is taxed at high rate.

We've kind of all been barking up the same tree. There are differences when it comes to dividend income (taxed at a different rate to your earned income and is not classed as 'relevant earnings' for pension contributions), which is why it's important to try and keep them as separate calculations.

You get 20% tax relief, then 40% tax relief - granted if you add these up over the year it may appear that you've recieved 37% tax relief, and your higher rate income tax may also reduce to effectively give what you may view as tax relief on your income, butmy view is that just confuses the issue - it's better not to entwine terminology!

So are you now saying that someone who earns over 58k will get 40% relief on approx 16k Being the difference between gross earning and the 40% threshold)?

browniej

brianrhill wrote: »

apologies guys, I was away from the office yesterday.

Essentially, you receive tax relief equivalent to the amount of tax you have paid, so it is proportional. You can't recieve high rate tax relief on pension contributions if you're not a high rate tax payer, and you only receive high rate tax relief equivalent to the amount of high rate tax you have paid through earnings, which in other words means that you recieve basic rate relief at source on all contributions, and high rate relief on some contributions where income is taxed at high rate.

So were the figures you gave for the £50k salary with £18,500 pension right or wrong then?

Earlier you seemed to say that the whole contribution would get 40% tax relief and now you seem to be saying you get 20% on part of it and 40% on part of it.

jem16

browniej wrote: »

Brianrhill is an IFA so I would expect him to know about financial matters etc but jem16 seems to be saying those figures are wrong - is he wrong?

I don't believe I am but would be interested in the answer to your post to brianrhill too.

I'm basically trying to work out how I can save myself some tax by possibly paying more into my pension.

Basically if you can avoid higher rate tax by paying that part of your income which falls into higher rate tax, then you could possibly save some tax.

However this is very much dependent on how much tax you will pay in retirement. If you pay higher rate tax now and then in retirement you won't save any tax in the long run, only defer it.

jem16

chucknorris wrote: »

So are you now saying that someone who earns over 58k will get 40% relief on approx 16k Being the difference between gross earning and the 40% threshold)?

Yes you will.

You don't physically have to pay higher rate tax to get higher rate tax relief on pension contributions.

That's what I though but brainrhill is saying that you only get 20% relief because I would be taking myself down to being a basic rate tax payer. It was a marginal decision anyway to pay into my pension, I don't think I will bother as I do not want to end up only getting 20% relief.

I never pay 40% tax and I am getting 40% tax relief. The highest amount of tax I pay is 20%.

However be careful - if you end up with too much pension income in retirement and are still a higher rate taxpayer, you will not gain anything. Same goes with crossing over the age allowance and losing some of your higher personal allowance.

jem16

brianrhill wrote: »

and your higher rate income tax may also reduce to effectively give what you may view as tax relief on your income, butmy view is that just confuses the issue - it's better not to entwine terminology!

It seems that your view is what has caused the confusion.

It seems that I'm not the only one who views the tax relief as actual tax relief. Browniej posted in the tax board;

https://forums.moneysavingexpert.com/discussion/comment/34712593#Comment_34712593

brianrhill

You're right Jem16, I think the way I put it across has caused the confusion! I think I'll stop contributing via my iPhone and just contribute from my PC!

jem16

brianrhill wrote: »

I think I'll stop contributing via my iPhone and just contribute from my PC!

Ah that's what it is - the iphone 4 "death grip"

Seriously, though, what do you view the tax relief as?

chucknorris

jem16 wrote: »

Yes you will.

You don't physically have to pay higher rate tax to get higher rate tax relief on pension contributions.



I never pay 40% tax and I am getting 40% tax relief. The highest amount of tax I pay is 20%.

However be careful - if you end up with too much pension income in retirement and are still a higher rate taxpayer, you will not gain anything. Same goes with crossing over the age allowance and losing some of your higher personal allowance.

It's ok our pensions are small, we will be relying about 85 - 90% upon a combination of savings interest and rental income (we may possibly end up in Spain and only pay 18% or Gibraltar and zero on our saings income).

The original plan was to sell all of our investment properties when the market was good in 10-15 years but as I will be late 60's then and possibly still live for quite a few years we think it's wise to retain a few properties as a hedge against inflation. But we should be able to keep below the 40% threshold in retirement.

mitchaa

jem16 wrote: »

I never pay 40% tax and I am getting 40% tax relief. The highest amount of tax I pay is 20%.

You mean 31% tax, soon to be 32%;)