Tax on Annual Allowance

5-Star

I would be interested in peoples views (particularly any pension tax experts!) on the following:
Annual allowance for the year = £50K (assume no carryover)
Contribution to annual allowance from Final Salary = £20K
AVC via salary sacrifice = £20K
Contribution to a SIPP = £10K (gross amount ie after adding the basic rate tax rebate)
Total contributions = £50K
As its not exceeding the allowance - no tax to pay and a 40% tax payer could reclaim the higher rate tax (£2K) on the sipp contribution.
However...
If the AVC was increased to £30K instead of £20K, the total contribution becomes £60K ie £10K over the allowance which would be taxed at 40% giving a £4K tax bill.
The question is - would the 40% tax payer still be able to reclaim the higher rate tax (£2K) for the sipp contribution giving a net tax bill of £2K?

gadgetmind

I haven't hit this under the new rules, but did under the special allowance rules.

Anyway, my understand is that you won't be able to reclaim the £2k as the intention of the charge is to remove all tax relief on contributions over £50k. Note however, that these contributions can still be worthwhile if they avoid the claw-back of personal allowance above £100k.

But I'm not an accountant!

If/when looking at carry forward also pay *very close attention to pension input periods.

This who area is a big sorry mess and a total minefield.

gadgetmind

P.S. Worked examples here -

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm15107030.htm

Sadly, they don't match the exact scenario you have in mind.

5-Star

gadgetmind;51331865
the intention of the charge is to remove all tax relief on contributions over £50k.

Makes sense but pondering on this some more, I'd like to think that the higher rate tax can be reclaimed from the SIPP or at least taken into account when the £10K is taxed.
My (possibly flawed) logic being that the SIPP only gets 20% tax relief at source. If the net contribution to the SIPP was £8K (which makes £10K after basic rate tax relief is added), it would require 20% not 40% tax to remove the effect of the tax relief received. If the £10K is taxed at 40% it would reduce the value of the contribution to £6k not the original £8K.
Am I missing something?

gadgetmind

5-Star wrote: »

Am I missing something?

Yes.

That it's all going to get a big fat stir (driven by fierce governmental hatred of people saving for their old age rather than working until death and thus being economically active) so there is little point in detailed planning until then.

In fact, any kind for forward planning regards pensions is like trying to walk in a straight line during an earthquake as the silly sods who make the rules just won't stop changing them.