Pension tax relief

jamesd

Just to be sure, did you tell HMRC that you made a personal pension contribution for any of the money that went into a pension by salary sacrifice? HMRC doesn't need to know about hose and shouldn't have them reported as pension contributions because tax relief has already been given.

What HMRC does to give higher rate tax relief outside salary sacrifice is increase your personal rate tax band by the gross amount, after adding basic rate tax relief, not full higher rate relief. So pay in 1000, provider will give you basic rate relief by grossing it up to !250 and you report that to HMRC as a 1250 gross pension contribution and they increase your basic rate tax band by 1250.

I don't think it's fully clear yet exactly how you made each pension contribution and what tax relief you got or should claim. And that lack of clarity might be something that HMRC has picked up on and is trying to get sorted out to help to ensure that you only claim and get the correct amount of tax relief.

Supernova wrote: »

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

Was the 42K gross by salary sacrifice? I'm trying to reconcile how you had 62k salary, 42k of pension contributions but ended up with 38k taxable income instead of 62k-42k = 20k. Salary sacrifice of 42k would have reduced your taxable income by 42k. Also, it's not uncommon for employers to add some of their saved NI, did they add any of this?

Did the 8k come out of pay or personal funds? Did the pension provider add 25% basic rate tax relief automatically to make it 10k as the gross that you would report to HMRC?

Did the 34k come from personal funds? Did the pension provider add 25% as basic rate tax relief to get it to £42.5k, with you telling HMRC about a £42.5k personal pension contribution?

Supernova wrote: »

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.

Were the PAYE contributions by salary sacrifice (deducted before income tax and NI calculation)? The numbers don't add up to match a 65k salary with £48.5k of salary sacrifice.

Something doesn't seem right here because the numbers just don't add up correctly for what you say happened. So I'm after more detail to try to work out what happened.

jem16

jamesd wrote: »

Was the 42K gross by salary sacrifice? I'm trying to reconcile how you had 62k salary, 42k of pension contributions but ended up with 38k taxable income instead of 62k-42k = 20k. Salary sacrifice of 42k would have reduced your taxable income by 42k. Also, it's not uncommon for employers to add some of their saved NI, did they add any of this?

I'm guessing that the OP's £62k salary already included some pension contribution made by salary sacrifice and that extra contributions were made that year to further reduce it to £38k.

Supernova

Hi James,

Yes, you're right, it doesn't add up.

Actually, £24K were my salary sacrifice contributions hence the £38K P60 figure. Another £9K were employer contributions.

The £42K L&G contribution was funded from a matured mortgage endowment, I paid roughly £32K nett and they added 20%.

So, in other words I used £17K unused allowance from 2012/13 and £35K from 2009/10.

So, hopefully I still only owe them 20% of the £4K difference between £42K PP and £38K P60?

For this year £6K was salary sacrifice whilst I was still working and £42.5K was a severance contribution paid into the scheme directly after leaving.

Thanks!

jem16

Supernova wrote: »

Hi James,

Yes, you're right, it doesn't add up.

Actually, £24K were my salary sacrifice contributions hence the £38K P60 figure. Another £9K were employer contributions.

Which makes £33k and not £42k. Was the other £9k your normal salary sacrifice arrangement or what? Or was it actually only £33k?

The £42K L&G contribution was funded from a matured mortgage endowment, I paid roughly £32K nett and they added 20%.

So, in other words I used £17K unused allowance from 2012/13 and £35K from 2009/10.

So, hopefully I still only owe them 20% of the £4K difference between £42K PP and £38K P60?

It would appear so.

For this year £6K was salary sacrifice whilst I was still working and £42.5K was a severance contribution paid into the scheme directly after leaving.

Thanks!

This £42.5k is the one aspect I'm not sure on with respect to tax relief. Was this your total severance pay?

Supernova

jem16 wrote: »

Which makes £33k and not £42k. Was the other £9k your normal salary sacrifice arrangement or what? Or was it actually only £33k?

It would appear so.

This £42.5k is the one aspect I'm not sure on with respect to tax relief. Was this your total severance pay?

£9K was from my employer not my salary sacrifice but contributes to the annual allowance, of which £33K was used for my occupational scheme.

The £42.5K was on top of the tax free redundancy amount.

Thanks

jem16

Supernova wrote: »

£9K was from my employer not my salary sacrifice but contributes to the annual allowance, of which £33K was used for my occupational scheme.

So the £42k mentioned earlier was a mistake?

The £42.5K was on top of the tax free redundancy amount.

Thanks

OK - that's clarified it as far as tax relief goes.

You have £1.5k left of this year's allowance. I wouldn't be hurrying to put that into your SIPP as it will only attract basic rate tax relief.

Supernova

jem16 wrote: »

So the £42k mentioned earlier was a mistake?

OK - that's clarified it as far as tax relief goes.

You have £1.5k left of this year's allowance. I wouldn't be hurrying to put that into your SIPP as it will only attract basic rate tax relief.

Yes £42K was a mistake, should have been £33K.

I'll probably leave the pension contribs and do a full ISA instead and reserve some for next year too. I've pretty much hit my pension target, I think.

Thanks

jem16

Supernova wrote: »

I'll probably leave the pension contribs and do a full ISA instead and reserve some for next year too. I've pretty much hit my pension target, I think.

Sounds like a good plan.

Perhaps you could let us know how the HMRC claim you made turns out?

FatherAbraham

Supernova wrote: »

Actually, £24K were my salary sacrifice contributions hence the £38K P60 figure.

They weren't your contributions at all. If you used salary sacrifice, then they were employer contributions.

Warmest regards,
FA

Supernova

jem16 wrote: »

Sounds like a good plan.

Perhaps you could let us know how the HMRC claim you made turns out?

Received the P800 for 2012-13 today.

Adding in bank interest of £1850 to the £38K P60 they have given me a rebate of £185.

Will I still owe anything now re: the £2K L&G pension overpayment (was £4K) or is that the end of it from their point of view?

Thanks