Pension tax relief

Supernova

jem16 wrote: »

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



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.

Well I had somehow got the impression that the big advantage was that it WAS on the whole lot

Do you mean the £42K PAYE has used up the relief or the £42K PP contribution?

Does 40% relief from previous years fit in somewhere assuming I have used the allowances I was advised to use correctly?

Many thanks

jem16

Supernova wrote: »

Well I had somehow got the impression that the big advantage was that it WAS on the whole lot

I'm afraid not.

Do you mean the £42K PAYE has used up the relief or the £42K PP contribution?

Sorry - I missed the fact that you had contributed £42k via salary sacrifice AND £42k via PP.

According to your P60, £38k was taxable earnings as the rest was sacrificed. If you then made a £42k PP contribution, you would only have been entitled to £38k worth of tax relief at 20%. The other £8k should have received no tax relief. If you have received an automatic uplift via your pension provider of basic rate tax, it looks like you may owe the taxman money as opposed to you claiming another 20% of £42k.

Does 40% relief from previous years fit in somewhere assuming I have used the allowances I was advised to use correctly?

Many thanks

You can use unused allowances from previous years but your tax relief is limited to the tax year in which the contributions are made.

Supernova

jem16 wrote: »

I'm afraid not..

:rotfl:

jem16 wrote: »

Sorry - I missed the fact that you had contributed £42k via salary sacrifice AND £42k via PP.

According to your P60, £38k was taxable earnings as the rest was sacrificed. If you then made a £42k PP contribution, you would only have been entitled to £38k worth of tax relief at 20%. The other £8k should have received no tax relief. If you have received an automatic uplift via your pension provider of basic rate tax, it looks like you may owe the taxman money as opposed to you claiming another 20% of £42k..

So you are saying I probably owe them 20% of £4K (rather than £8K as you said - typo?).

jem16 wrote: »

You can use unused allowances from previous years but your tax relief is limited to the tax year in which the contributions are made.

So there is no tax relief whatsoever from carry forward years? I thought that was the point of the £50K carry forward tax allowance.

Funny how I ran all of this past advisors at Jardine Lloyd Thompson, Hargreaves Lansdown, two IFAs, several wealth managers and it turns out to have been completely wrong.

The other thing is that on my P45 I have paid £11K tax this year on £36.5K taxable earnings (including a salary sacrifice pension contribution of £6K). So am I owed anything back or has the £42.5K severance pension contribution put paid to that?

Thanks again - understanding tax appears not to be my forte

jem16

Supernova wrote: »

So you are saying I probably owe them 20% of £4K (rather than £8K as you said - typo?).

Yes - sorry it should have been £4k.

So there is no tax relief whatsoever from carry forward years? I thought that was the point of the £50K carry forward tax allowance.

No there's no extra higher rate tax relief. What it does is allow you to make contributions over the normal £50kpa allowance in any one year and gain tax relief. So you could make an £80k contribution which would gain tax relief but the amount of tax relief is based on your earnings for that tax year.

Funny how I ran all of this past advisors at Jardine Lloyd Thompson, Hargreaves Lansdown, two IFAs, several wealth managers and it turns out to have been completely wrong.

Did you make it clear that most of your contributions came from salary sacrifice which reduced your gross salary?

The other thing is that on my P45 I have paid £11K tax this year on £36.5K taxable earnings (including a salary sacrifice pension contribution of £6K). So am I owed anything back or has the £42.5K severance pension contribution put paid to that?

Thanks again - understanding tax appears not to be my forte

Will you have other taxable income this tax year?

Supernova

jem16 wrote: »

Did you make it clear that most of your contributions came from salary sacrifice which reduced your gross salary?

As you can see I don't think I understood the implications - maybe one of them might have sussed that salary scrifice is a normal part of the landscape now, especially for the global financial services company I worked for.

jem16 wrote: »

Will you have other taxable income this tax year?

I was planning self-employment. Income would be perhaps £2K but startup costs would lead to a loss. I was told the loss could be offset against current or a previous year's employed income. I was also hoping this might be a 40% tax offset .

Thanks again!

jem16

Supernova wrote: »

As you can see I don't think I understood the implications - maybe one of them might have sussed that salary scrifice is a normal part of the landscape now, especially for the global financial services company I worked for.

I suppose a lot depends on how you described your income.

I was planning self-employment. Income would be perhaps £2K but startup costs would lead to a loss. I was told the loss could be offset against current or a previous year's employed income. I was also hoping this might be a 40% tax offset .

Thanks again!

Can't really help with the tax implications on self-employment I'm afraid.

Thrugelmir

Supernova wrote: »

maybe one of them might have sussed that salary scrifice is a normal part of the landscape now,

Never assume. Provide the full facts.

Supernova

jem16 wrote: »

Can't really help with the tax implications on self-employment I'm afraid.

Ah OK, so to make it simple if I had no more income at all what would the PAYE tax situation look like?

I was planning on drawing pension benefits from a SIPP in January but it would be partial drawdown with the TFC tiding me over until April when I would take some of the income.

I don't think what I've learnt here will affect my plans too much apart from less of an emergency cash fund than I had hoped for.

Thanks

jem16

Supernova wrote: »

Ah OK, so to make it simple if I had no more income at all what would the PAYE tax situation look like

You would be due a refund of a little over £5k.

Supernova

Thanks for an educational evening Jem16 :-)