Tax relief on pension lump sum - advice please

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
9 replies 1.7K views
lanclass_2lanclass_2 Forumite
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Hello
I am thinking of buying £1k additional pension through the Teachers' Pension Scheme. This would cost approx £13,400. If I pay this as a lump sum, can I claim tax relief on it? If so, how much would that be?
Also, in April, I will become a higher rate tax payer, so if I can claim tax relief, is there any advantage in waiting until then?
I would really appreciate any help - I've spent a long time on hold to the Cardiff Tax office and not managed to get through yet!
Thanks a lot for any replies.

Replies

  • JOHNGTJOHNGT Forumite
    108 Posts
    Yes, you will get tax relief of 20% of the gross payment i.e. 20% of £13,400. You will only get higher rate relief to the extent that you pay higher rate tax.

    For example, next year, the point at which you pay higher rate tax will start at £42,475 (assuming you are under 65 and there are no adjustments to your personal allowance). If your taxable income is say £45,475, you would get higher rate relief on £3,000 of the pension contribution.

    So, worthwhile waiting until April as at least you'll get some higher rate relief.
  • LintonLinton Forumite
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    You will get tax relief on it, assuming your income at the moment is more than £13,400.

    There are two ways it could be done - you pay £13400 and then the pension scheme gets an additional £3350 (25%) from HMRC as a tax rebate, giving a total of £16750 pension payment so you dont see the refund as it goes into your pension.

    Alternatively you pay the £13400 and then you claim £2680 tax rebate (20%) from HMRC. Which method is used will depend on the Pension Scheme.

    As to whether its best to wait.... You can only claim higher rate tax relief on that part of your income above the threshold. I assume this is relatively small. So you could part of the £13400 in now leaving sufficient for the next tax year to bring you down to the threshold.
  • JOHNGTJOHNGT Forumite
    108 Posts
    This is the Teacher's pension scheme. The lump sum is the gross cost. If you pay by lump sum you will claim back all of the tax relief via your Inspector of Taxes.

    Teachers scheme also allows you to buy added years via monthly salary deduction. If you do this, the payments are deducted from your pay before tax is calculated, so you get your tax relief (including your higher rate tax relief) at the same time as you make the payments i.e. no need to claim anything back from the IoT.

    Yes you do need to have taxable income of £13,400 to pay £13,400 but as you will be a higher rate taxpayer next year, I guess you are already earning near to or over £40K.
  • kidmugsykidmugsy Forumite
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    Or you could buy it a bit at a time from next tax year onwards, avoiding higher rate tax year after year.
    Free the dunston one next time too.
  • jem16jem16 Forumite
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    JOHNGT wrote: »
    Teachers scheme also allows you to buy added years via monthly salary deduction. If you do this, the payments are deducted from your pay before tax is calculated, so you get your tax relief (including your higher rate tax relief) at the same time as you make the payments i.e. no need to claim anything back from the IoT.

    I assume you really meant to say that you can buy additional pension monthly as added years are no longer available.
  • JOHNGTJOHNGT Forumite
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    jem16 wrote: »
    I assume you really meant to say that you can buy additional pension monthly as added years are no longer available.

    That's because I'm a pre-87 regimer
  • jem16jem16 Forumite
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    JOHNGT wrote: »
    That's because I'm a pre-87 regimer

    Sorry? You need to explain that please.
  • JOHNGTJOHNGT Forumite
    108 Posts
    Just means I've been in pensions for too many years and the old terms such as "added years" are ingrained. Pre-87 was an occupational pensions tax regime (no cap on remuneration or tax free cash, up to 1/15th accrual etc)
  • jem16jem16 Forumite
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    JOHNGT wrote: »
    Just means I've been in pensions for too many years and the old terms such as "added years" are ingrained. Pre-87 was an occupational pensions tax regime (no cap on remuneration or tax free cash, up to 1/15th accrual etc)

    Need to move with the times I'm afraid.
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