Tax relief on pensions and redundancy

Dunnit

I may be being made redundant later this year. The sums aren't large but just wondered how the tax will work.
In round figures, I earn £3k pcm and my pension will be £1.7k pcm. I reckon that I will be let go 4 months into the tax year so will receive £12k wages and £13.6k pension in 2015/16.
On leaving I will be able to add some extra pension from my redundancy but do not know how much tax I will be able to reclaim. Can I use my annual allowance against my pension and claim all the tax paid against the £12k or is it broken down by month?
Any advice gratefully received.

Triumph13

The most you will be able to put in is the £12k as you are limited to 100% of earnings (pension income doesn't count), but you will be able to get tax relief on all of it ie you pay in £9,600 cash to a private pension / SIPP and get £2,400 of tax relief added to it.

Dunnit

Sorry further clarification: The payment will be through my employer as it is a Civil Service DB pension that I wish to top up therefore the money will be refunded directly from HMRC and is restricted by the amount of tax I have paid. If I offset my personal allowances against my salary then I get no tax relief; if I offset my personal allowances against my pension then I can presumably invest £6k and get full tax relief.
The question I guess boils down to whether I can decide which pot I use my allowances for as only one will allow tax relief on any further pension.

xylophone

Do you mean that you are buying additional pension as here?
(Relates to Annual Allowance of £50,000 but would now be £40,000)

http://www.civilservicepensionscheme.org.uk/media/41087/cscs_voluntary_redundancy_guidance_for_staff_tcm6-38087.pdf

OldBeanz

Yes. That's me, over 60 - well next month:).

I was targeting a pension of £20k for obvious reasons until last year but they are now trying to kick me out.

I just wanted to gain the max within my tax paid limits and would SIPP the rest and then feed that into the wife's pension as she will not touch her personal allowance until she gets her state pension.

Starts getting a bit regulatory around this time. Was only intending to pay in £8k or so.

drumtochty

Dunnit you are confused here.

You are being made redundant and you will receive some redundancy money.

The first £30,000 of this payment is tax free and the first choice here is £15,000 into an isa for two years unless you have a partner in that case you have two £15,000 allowances in the same year where the income from that source will be tax free.

If you are getting £40,000 as a redundancy payment then the £10,000 of that money that is above the tax free pot can be put into your employers pension scheme as your taxable income is this, wages £12,000, non tax free redundancy in this example £10,000 so £22,000 wages you can get tax relief with.

Your pension payments £13,600 approx. will cover the £10,600 2015/2016 personal allowance.

Dunnit

I will be getting less than £30k redundancy hence wanting to restrict payment to taxable income. Thus I do not know how much of my £10k or so personal allowance is set against my pension and how much set against my salary. So if I pay £8k into my pension how much tax relief would that attract?

jem16

Dunnit wrote: »

I will be getting less than £30k redundancy hence wanting to restrict payment to taxable income. Thus I do not know how much of my £10k or so personal allowance is set against my pension and how much set against my salary.

It doesn't work that way as it's all taxable income.

As far as HMRC are concerned if you earn £3k for 4 months you will have £12k of earnings which are able for tax relief. So £12k is the maximum you can pay in - this will also include your normal contributions.

So if I pay £8k into my pension how much tax relief would that attract?

As you say the £8k will be a gross payment which should give you 20% tax relief assuming your normal contributions in those 4 months were not higher than £4k.