pension tax relief Disagreement with inland revenue

alanm77

hope someone can explain my issue with the revenue about tax relief on pension contributions. On top of my final salary pension scheme I pay into an AVC to standard life via my monthly payroll. In march i had some extra money so decided to contribute more to my AVC and sent a money transfer of £8K to standard life to top up my AVC, i then asked them to reclaim the tax relief of 20% as i am a basic rate taxpayer. I worked out that should equal £2k.
Standard Life came back and said due to the way the scheme is setup they have no facility to claim any money back from the revenue. I had to do a tax return and the revenue sent me a cheque for £1600. I asked the revenue (over the last 6 months) to explain why i didnt get £2k and they claim they multiplied £8000 x 20% (as i am a basic rate payer). Why if Standard Life could reclaim the tax the revenue would have to have paid £2k but when an individual does a claim they get paid less ?

hugheskevi

If the provider claims the relief, it would be added to the pension. In this case, that would mean you would contributed a total of £10,000 to the pension, with £8,000 from your contribution and £2,000 in tax relief.

But as the scheme cannot claim tax relief, your total contribution is now only £8,000.

Of that £8,000 the amount from you is £6,400 and the amount from tax relief is £1,600.

Which is what you have been refunded - the key thing here is that in the first case you would have ended with £10,000 in the pension and in the second case you end up with £8,000 in the pension. You get less tax relief because you put less (overall) into the pension.

alanm77

starting to make sense now, thanks hugheskevi, so my net contributions of £8000 doesnt make gross £10000 when the money doesnt go back into the pension scheme ?

i dont understand the line when you say "of that £8,000 the amount from you is £6,400" i sent a payment of £8000 net to standard life

thanks again

hugheskevi

starting to make sense now, thanks hugheskevi, so my net contributions of £8000 doesnt make gross £10000 when the money doesnt go back into the pension scheme ?

Correct - you have made a total AVC of £8,000.

If you had wanted to make a contribution of £10,000 then you should have transferred £10,000 and claimed £2,000 back from HMRC.

i dont understand the line when you say "of that £8,000 the amount from you is £6,400" i sent a payment of £8000 net to standard life

And you got a refund of £1,600 so overall you have ended up with £8,000 in the pension at a cost to you of £6,400

Which is the same as if the scheme claimed tax relief on your behalf and you had transferred them £6,400 - they would have claimed £1,600 tax relief, added that to the £6,400 and you would have £8,000 in the pension with no tax refund to come.