tax relief on re-invested tax relief

roomaniac

Forgive me, I am new to personal pensions and tax relief having previously been in employer's schemes, so this may be a really stupid question.
As a 40% tax payer, I understand that the basic rate will be claimed by my pension provider and added to my fund.
Also, that I need to claim further 20% through my SA.

Is this paid to me as cash? If so, what is to stop me investing this relief in my pension and attracting a further 40% relief on this sum, i.e. tax relief on tax relief? If this is possible then it is a perk not available to people in employer schemes where the 40% is added at source and compensates for the cash flow disadvantage.
Or am I missing something obvious (like the additional relief is paid to the pension provider and not me)?
:undecided

kidmugsy

roomaniac wrote: »

Forgive me, I am new to personal pensions and tax relief having previously been in employer's schemes, so this may be a really stupid question.
As a 40% tax payer, I understand that the basic rate will be claimed by my pension provider and added to my fund.
Also, that I need to claim further 20% through my SA.

Is this paid to me as cash?

Yes.

How it works: you pay £80 to the provider; he claims £20 from HMRC. Your pension pot has grown by £100.

You claim £20 from HMRC. When you receive it your net cost is (£80 - £20) = £60.

That's the sense in which £60 buys you £100.

RuleTheWorld

Presuming you have plenty earnings in the 40% rate then that works fine regardless of whether its a rebate or change to tax code

jamesd

You don't need to wait for a tax return. You can just tell HMRC your expected gross pension contributions for the year and they will adjust your tax code to give you the relief during the year.

The easiest way to do this is probably via your Personal Tax Account. There's an option there to tell them about expected income in the current year that they can use to make the adjustment.

There's nothing to stop you using the tax relief for more contributions, it's fine.

RickyB2000

roomaniac wrote: »

Is this paid to me as cash? If so, what is to stop me investing this relief in my pension and attracting a further 40% relief on this sum, i.e. tax relief on tax relief? If this is possible then it is a perk not available to people in employer schemes where the 40% is added at source and compensates for the cash flow disadvantage.
Or am I missing something obvious (like the additional relief is paid to the pension provider and not me)?
:undecided

Nothing stopping you, but they are the same. When in an employer scheme, it costs you £60 in pay to get £100 in the pot. When you contribute yourself, it costs you £80 to get £100 in the pot. So you paid in an extra £20 which you have already paid 40% tax on. HMRC give you that £20 back, but it still has been taxed at 40% (you have only received the equivalent relief on £60). So if you pay the £20 in again, you will just get that 40% back. So all even!

PaulC5

RuleTheWorld wrote: »

Presuming you have plenty earnings in the 40% rate then that works fine regardless of whether its a rebate or change to tax code

I recently got a letter from HMRC with a change to my Tax code.

On it, it said I had gained something like £1,300 from pension relief but it was added to my tax code so this tax year I can now earn the normal £11,000 + £1,300 (£12,300) before I pay tax.

I think I'd of much preferred a £1,300 cheque so I could put that straight into my pension and forget about it.

Do you know if there is an option on the SA Tax return to choose how you want this pension relif to be paid or do they make the decision?

greenglide

Is the new tax code not for the 2016 / 2017 contributions that they expect you to make?

If there is an overpayment so that your 2015 / 2016 self assessment identifies a potential refund the form has an option to pay that into a bank account that you give them.

It is a difference between a lump sum payment and an ongoing regular payment.

somethingcorporate

PaulC5 wrote: »

I recently got a letter from HMRC with a change to my Tax code.

On it, it said I had gained something like £1,300 from pension relief but it was added to my tax code so this tax year I can now earn the normal £11,000 + £1,300 (£12,300) before I pay tax.

I think I'd of much preferred a £1,300 cheque so I could put that straight into my pension and forget about it.

Do you know if there is an option on the SA Tax return to choose how you want this pension relif to be paid or do they make the decision?

An increase of £1,300 in your tax code is not the same as a cheque for £1,300 - your net benefit would be £1,300 at your marginal rate (i.e. 20% if you are a basic rate tax payer or 40% for higher etc).