HR tax Relief - Code Adjustment?

AlanP_2

Can someone clarify what a HR taxpayer's code should be adjusted by per £1000 p/a of personal pension contributions please so that I can check a recent coding notice?

Thanks.

mgdavid

won't it depend on whether the pension contribution for the year is less than, or more than the amount of income you pay HRT on?
Also will depend on whether you are paying into another pension scheme, employer's perhaps.
It may be better for an accurate reply if you gave some background scenario and actual figures.

AlanP_2

The PP is being paid out of income that is subject to HR tax according to the HMRC Annual Summary received received recently i.e. after deducting DB scheme contributions.

For an annual contribution of £2400 net they are proposing to add £1500 to next year's tax free amount which equates to £300 relief by my calculations when I would have expected £600 of relief and again I anticipate this will come out of income exposed to HR tax.

jem16

AlanP wrote: »

For an annual contribution of £2400 net they are proposing to add £1500 to next year's tax free amount which equates to £300 relief by my calculations when I would have expected £600 of relief and again I anticipate this will come out of income exposed to HR tax.

By adding £1500 to the tax-free amount, it takes £1500 out of higher rate tax at 40% thus saving £600.

xylophone

See http://www.pruadviser.co.uk/content/knowledge/technical-centre/tax_relief_members_contributions/

re extending the basic rate band.

AlanP_2

jem16 wrote: »

By adding £1500 to the tax-free amount, it takes £1500 out of higher rate tax at 40% thus saving £600.

Thanks, that makes sense now. I was looking at it in terms of the extra 20% over and above what would be reclaimed by the platform.

bowlhead99

AlanP wrote: »

jem16 wrote: »

By adding £1500 to the tax-free amount, it takes £1500 out of higher rate tax at 40% thus saving £600.

Thanks, that makes sense now. I was looking at it in terms of the extra 20% over and above what would be reclaimed by the platform.

The other way to think of it, is that as you know, your 2400 net contribution to your personal pension is a 3000 gross contribution inside the pension scheme because your provider will get the basic rate tax rebate from HMRC.

So, once the dust settles, you have given up 3000 of your taxable income to make a 3000 pension contribution.

Why then is HMRC going to give you 'only' 1500 of extra personal allowance, if they are trying to sort you out for a 3000 pension contribution?

The answer is that half the tax relief (20% basic rate) has already been collected for you by the personal pension provider. So you only need sorting out for the other half (difference between 20 already claimed by the provider and the 40% you want because you're a high rate payer). So they aren't going to give you a 3000 extension to your personal allowance, they only have to give you 1500 adjustment instead of 3000, and you'll get to the right place.

Or as jem says, you want to get 600 quid off your PAYE tax bill, and you pay tax at 40%, so if there's 1500 for you not to pay tax on, you'll save your £600