Reclaiming tax on pension contributions!

zyper

Apologies if there is already a thread but I couldn't find it.

Does anyone have experience of reclaiming tax on pension contributions as a higher rate tax payer? I wasn't aware of the situation till reading these pages & there's a couple of years where this might have applied to me. To complicate it further, this will go back a few years & involve a private & work pension scheme separately!!

Thanks in advance

marlot

The work scheme would happen automatically if the employer is deducting the contribution.


You just claim the personal one on your tax return, assuming you pay for it out of taxed income.

zyper

Thanks marlot.

Just to clarify 2 things:

-the work one, the employer will claim both the initial 20% for basic rate PLUS the next 20% on the higher rate portion?

-On the personal one, is there a time limit? Mine would be over 10 years ago!

Thanks

CLAPTON

zyper wrote: »

Thanks marlot.

Just to clarify 2 things:

-the work one, the employer will claim both the initial 20% for basic rate PLUS the next 20% on the higher rate portion?

-On the personal one, is there a time limit? Mine would be over 10 years ago!

Thanks

the employer doesn't reclaim anything

however if you paid into the pension scheme from gross salary (i.e. before tax was deducted), then you have received the full tax relief.

if you paid from your post tax salary then you will be owed the higher rate (20%) tax

I think the time limit for tax reclaims is 4 years now but do check

Paul_Herring

zyper wrote: »

-the work one, the employer will claim both the initial 20% for basic rate PLUS the next 20% on the higher rate portion?

If the contribution is coming from your gross pay (salary sacrifice) then it's coming from your pay before it hits the income tax (and NI incidentally) calculations - there's no tax to reclaim, since it was never deducted to begin with.

If the contribution is coming from your net pay, then you claim the extra 20% via your self assessment.

For example (assume marginal rates here - i.e. this is a hypothetical £100 from the top bit of your salary):

No pension deductions:
You get paid (gross) £100, income taxed £40, NI'd £2, you receive £58, total £58 (in your bank)

Salary sacrifice:
You get paid (gross) £100, sacrifice that £100, nothing left to tax, total £100 (in your pension)

From post-tax:
You get paid (gross) £100, income taxed £40, NI'd £2, you put remaining £58 into pension which £14.50 (£58/80%*20%) gets automatically added, you claim a further £14.50 from self assessment (£58+£14.50+£14.50) total £87 (£72.50 in your pension, £14.50 in your bank/off your next tax-code)

Alternatively to end up with most of your 40% in your pension:
You get paid (gross) £100, income taxed £40, NI'd £2, you put remaining £58 (plus £19.33 borrowed from rebate from later) total £77.33 into pension which another £19.33 (£77.33/80%*20%) gets automatically added, you reclaim £19.33 (which you 'borrowed' earlier) from self assessment (£77.33+£19.33) total £96.66 (in your pension)

[Edit note: Calculations in the third scenario corrected in light of jem16's comments below]

jem16

Paul_Herring wrote: »

If the contribution is coming from your gross pay (salary sacrifice) then it's coming from your pay before it hits the income tax (and NI incidentally) calculations - there's no tax to reclaim, since it was never deducted to begin with.

There are also those whose pension contributions comes from gross pay but it is not a salary sacrifice scheme. In this case full,tax relief is given but NI is still paid on the gross salary.

From post-tax:
You get paid (gross) £100, income taxed £40, NI'd £2, you put remaining £58 into pension which £19.33 (£58/60%*20%) gets automatically added, you claim a further £19.33 from self assessment (£58+£19.33+£19.33) total £96.66 (£77.33 in your pension, £19.33 in your bank/off your next tax-code)

If you put £58 in your pension you would only get £14.50 added on and be able to claim another £14.50 back as the pension provider only adds on basic rate tax relief of 20%.

You would really need to pay in £78.40 which would then be grossed up to £98 with tax relief of £19.60. You would then claim another £19.60 back meaning that your contribution actually cost you £58.80.

Paul_Herring

jem16 wrote: »

If you put £58 in your pension you would only get £14.50 added on and be able to claim another £14.50 back as the pension provider only adds on basic rate tax relief of 20%.

You may want to have a word with Hargreves Landsdown then:

http://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator

Working backwards and entering a (total after rebates) £96.66 contribution on £50K salary indicates £58 (actually) contributed (i.e. what one would have after IT&NI from £100), with £19.33 basic rate tax relief added immediately and a further £19.33 claimed back as a 40%er.

Or am I reading the results from that page wrong?:

jem16

Paul_Herring wrote: »

Working backwards and entering a (total after rebates) £96.66 contribution on £50K salary indicates £58 (actually) contributed (i.e. what one would have after IT&NI from £100), with £19.33 basic rate tax relief added immediately and a further £19.33 claimed back as a 40%er.

Or am I reading the results from that page wrong?:

You're reading it wrongly I'm afraid.

Note that it says for a £96.66 contribution you should contribute £77.33. £19.33 would be added on by the pension provider and £19.33 would be reclaimed.

This would mean that the effective cost is £58 - ie £77.33 minus £19.33.

Paul_Herring

jem16 wrote: »

You're reading it wrongly I'm afraid.

Note that it says for a £96.66 contribution you should contribute £77.33. £19.33 would be added on by the pension provider and £19.33 would be reclaimed.

This would mean that the effective cost is £58 - ie £77.33 minus £19.33.

Ah - 'effectively borrowing' against the future rebate...

jem16

Paul_Herring wrote: »

Ah - 'effectively borrowing' against the future rebate...

Basically yes. It's the only way the figures would work if you compare paying from gross and net pay for a 40% taxpayer.

If the tax code is adjusted as opposed to the reclaim being done through the tax return, it would be more instant anyway as you'd be paying less tax so could afford the higher payment.

zyper

Thanks guys for all your contributions.Very useful & helpful. If the 4 year limit quoted is the case then I'm afraid I am scre*d as I've passed it n this case. I will chase it up regardless with HMRC as it will be worth the hassle if I can still claim..though I doubt it:(