Tax relief on pension lump sum contribution

anonymousthegeek

I'm hoping someone can help clarify the situation re: tax relief on a lump sum pension contribution.

If I'm a 40% tax payer, and I have a one-off lump sum I want to contribute to my pension, I get 20% automatically when it goes into my pension. What are the rules/limits that define how much I can pay in to claim the other 20% back?

For example, suppose I'm on 10K over the 40% tax threshold, and have 15K to contribute. I'm assuming I obviously wouldn't get the extra 20% back on the full 15K? In which case, it would be better to contribute 10K in 1 tax year, and then the remaining 5K in the next tax year?

Thanks in advance for any help for a tax-scaredy-cat!

jem16

anonymousthegeek wrote: »

For example, suppose I'm on 10K over the 40% tax threshold, and have 15K to contribute. I'm assuming I obviously wouldn't get the extra 20% back on the full 15K?

Correct. You would only get 40% tax relief on the £10k.

In which case, it would be better to contribute 10K in 1 tax year, and then the remaining 5K in the next tax year?

Yes.

kidmugsy

jem16 wrote: »

Correct. You would only get 40% tax relief on the £10k.

Remember that that's £10k gross. You write your cheque for £8k, the provider claims back £2k from the taxman, and you claim the other £2k back from HMRC yourself.

mania112

No, he/she can contribute the full £10k and get the relief on top.

His/her earnings are (presumably) circa £52k - so they can put all of it above the £42k tax bracket and get 40% relief on 100% of it.

As said, you get 20% automatically and claim the remaining 20% at the end of the year. Speaking of which, you should get your act together and do it ASAP, because we're approaching the April 5th (wasn't it Christmas the other day?!)

mania112

...think of tax relief as a 'sorry we took tax out of your pay, here have it back'

jem16

mania112 wrote: »

No, he/she can contribute the full £10k and get the relief on top.

His/her earnings are (presumably) circa £52k - so they can put all of it above the £42k tax bracket and get 40% relief on 100% of it.

Not sure what you're trying to say here??

The OP's question was to do with a £15k pension contribution and only being £10k into higher rate tax.

In that case the OP would only recieve 40% tax relief on £10k gross which is an £8k net payment.

If you are suggesting a contribution of £10k that would be £12.5k gross with £10k receiving 40% tax relief and £2.5k receiving 20% tax relief.

Can you explain what you are meaning please?

mania112

Something is telling me that £8k isn't right. I may have screwed up my reasoning though.

If you have £10k @40%, that is on your Gross pay.

If you're left with £6k after tax, £8k is surely too much to gain 40% relief?

kidmugsy

mania112 wrote: »

Something is telling me that £8k isn't right.

Don't listen to it; it's Satan, trying to mislead you.

jem16

mania112 wrote: »

Something is telling me that £8k isn't right. I may have screwed up my reasoning though.

If you have £10k @40%, that is on your Gross pay.

If you're left with £6k after tax, £8k is surely too much to gain 40% relief?

It's exactly as kidmugsy described.

What are your calculations?

anonymousthegeek

Thanks all