Pension tax relief

Supernova

Hi,

I have paid a substantial amount directly from payroll into my occupational pension last tax year via salary sacrifice and this year as part of a redundancy package (42K each year).

In both cases my P60/P45s shows taxable earnings under the 40% threshold. Does this mean I am not a 40% earner for both years in terms of getting further relief on personal pension contributions e.g. to a SIPP? And does that also apply to carry back years.

Thanks for any thoughts

jem16

Supernova wrote: »

Hi,

I have paid a substantial amount directly from payroll into my occupational pension last tax year via salary sacrifice and this year as part of a redundancy package.

In both cases my P60/P45s shows taxable earnings under the 40% threshold. Does this mean I am not a 40% earner for both years in terms of getting further relief on personal pension contributions e.g. to a SIPP? And does that also apply to carry back years.

Thanks for any thoughts

Your P60/P45 as you say will show your taxable earnings. This is not necessarily the same as your gross earnings as it will not include any pension payments made before tax is paid.

If your gross income (including savings or investment income) plus any benefits in kind is above £41,450 then you are still a higher rate taxpayer and will be entitled to relief on the portion that you are above it.

Supernova

Thanks Jem16. In that case I'll be happy on both counts.

Conflicting advice from IFAs, pensions experts and accountants got me worried there. I claimed a tax refund from HMRC in April for a PP contribution and they are delaying after sending numerous 6-weekly letters asking for more and more proof/P60.

I want to make further SIPP contributions this year but had this niggling doubt that I had got all my planning wrong...

jem16

Supernova wrote: »

Conflicting advice from IFAs, pensions experts and accountants got me worried there. I claimed a tax refund from HMRC in April for a PP contribution and they are delaying after sending numerous 6-weekly letters asking for more and more proof/P60.

I suppose getting the proof may be the issue with salary sacrifice. Do your payslips show the pension contribution in any way?

Thrugelmir

If you've made salary sacrifice then the employer has made the contributions not you. So you've had the benefit of paying no tax and also saved yourself some NI contributions.

Your salary sacrificed for additional pension contributions will not form part of the P60 declaration.

Supernova

jem16 wrote: »

I suppose getting the proof may be the issue with salary sacrifice. Do your payslips show the pension contribution in any way?

Monthly payslips do, the P60 and P45 appear not to...

Supernova

Thrugelmir wrote: »

If you've made salary sacrifice then the employer has made the contributions not you. So you've had the benefit of paying no tax and also saved yourself some NI contributions.

Your salary sacrificed for additional pension contributions will not form part of the P60 declaration.

Thanks. The NI is indeed a nice bonus, but am I a 40% taxpayer for the purposes of Personal Pension contributions? That would be worth more to me :-)

Linton

Supernova wrote: »

Thanks. The NI is indeed a nice bonus, but am I a 40% taxpayer for the purposes of Personal Pension contributions? That would be worth more to me :-)

Thrugelmir has put the situation succinctly: from what you have said about your P60/P45 you are not a 40% tax payer.

jem16

Supernova wrote: »

Thanks. The NI is indeed a nice bonus, but am I a 40% taxpayer for the purposes of Personal Pension contributions? That would be worth more to me :-)

It sounds like you may have made sufficient contributions already to take you below the 40% rate so may have no more income at higher rate tax level to claim the extra tax relief.

Perhaps you could provide some figures?

Supernova

My annual salary for the last 4 years or so has been 62K gross. The last 2 years I decided to up my pension contributions in preparation for early retirement.

Via PAYE last year I contributed 42K gross and also contributed 8K of that year's allowance plus 34K carry back from 2009/10 to a Personal Pension on which I have claimed the extra 20% £8K tax relief.

P60 shows £38K taxable earnings, tax paid £6K (717L).


This year I was made redundant in July and P45 shows £37K taxable, tax paid £11K (851L).

I made £48.5K contributions via PAYE and a direct redundancy settlement. I want to put a further £1.5K from this year's allowance plus some carry back to 2010/11 and 2011/12, say another £8.5K.

What tax relief can I claim for the £42K and £10K PP contributions above?

Many thanks

jem16

Supernova wrote: »

My annual salary for the last 4 years or so has been 62K gross.

With that salary, approximately £21k is into higher rate tax.

What tax relief can I claim for the £42K and £10K PP contributions above?

Many thanks

The £42k contribution has already used up your higher rate tax relief - half of it would have been at 40% and the other half at 20%.

The £10k PP would only attract basic rate tax relief so you should not be claiming an extra 20%.

Basically higher rate tax relief can only be claimed on the portion into higher rate tax and not the whole lot.