Pension/Tax Implications

billchecker1

Im after some advice please for my current pension commitments/tax issues.

I have two jobs:

In my main job I expect to earn around £41200 this tax year, however from this I pay 13.44% into a defined benefit pension. As a guide, last year I spent £5200 on pension contributions

For my second job I had expected to earn £1000, however this is now looking like closer to £5000, taking me over the higher rate threshold. All of this goes currently into the pension scheme at 100% and i am BR tax code with Aviva adding it back on.

So roughly my income will be 46200 with 10200 going into a pension.

Earlier in the year I had told the tax office that I would only get the lower amount.

Do I need to tell them about this change? How will it affect my second pension? Can I simply have the second code at the higher rate? How would I claim my tax back. They wont offer salary sacrifice. Do I need to see an accountant? I don’t want them to take out the tax from my main job next year. Sorry for all the questions!

xylophone

You should advise HMRC of the higher earnings and of the pension contributions - a higher rate tax payer will only be given basic rate relief through a personal pension- higher rate relief needs to be reclaimed from HMRC ( or a higher tax code given).

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Triumph13

If I understand you correctly then there is no issue here. Your main job pays a nominal £41,200, but £5,200 of this goes straight to the DB pension scheme so your taxable income is only £36k. Adding on the £5k from the other job brings you up to £41k. This is below the level for HRT so you are not a HRT payer and have no entitlement to more than basic rate relief.

billchecker1

Hi yes this is my quandry,

My earned income is higher than HRT but my income after pension contributions is not.

So do I tell tell HMRC in which case they may tax my main job, which would make my expenses unnafordable or do i carry on as I am, with the knowledge that after contributions I am under the HRT.

RickyB2000

Personally, I would leave it for now and contact HMRC after the end of the tax year with full details of everything. Esp if my second income was variable.

If I knew I had paid correct tax, I probably wouldn't bother. I think HMRC wouldn't want me to bother either, more work for them. Likely a driver for things like saving and dividend allowances, decrease number of people who have to contact HMRC. Stop PAYE HRT payers having to ring up to declare £50 interest on some savings which probably costs HMRC more to process (and clogs up the lines)

Triumph13

There's nothing to tell HMRC - as long as your tax code is zero for your second job ie you are paying 20% tax on all of it. You are already paying all the tax and getting all the relief that you should. Nothing you do will change the amount of tax you pay / relief you get.
Effectively part of your DB contributions are getting 40% relief by keeping you out of the HRT band in the first place.

worn_out

My son is a higher rate tax payer, and has a personal pension which has 20% added back into his monthly contribution. His financial advisor knew of his higher tax status but didn't say anything about having to contact HMRC to get his 'other' 20% back from his personal pension contributions. Only thru' a chance discussion with him did we realise what was happening..so we dug out 5 years worth of pension statements..worked out the figure - rang HMRC who knew exactly what had happened because 'it happens all the time' ..send the papers to HMRC..cheque for £2500 in the post and tax code increased for current year.

Many on here will know all about this,but maybe some don't..we didn't but managed to get back everything he was entitled to..and from hereon in any increase in his personal pensions contributions will include a letter to advise HMRC so they can increase his tax code allowance to recover his 40%.

greenglide

Many on here will know all about this,but maybe some don't..we didn't but managed to get back everything he was entitled to..and from hereon in any increase in his personal pensions contributions will include a letter to advise HMRC so they can increase his tax code allowance to recover his 40%.

Just go to show that "everyone" (especially those paying higher rate tax) should complete and submit a self assessment every year and, crucially, ought to actually understand the tax system. It isnt rocket science, anyone who deserves to earn enough to pay higher rate tax ought to be ably to understand it.

So I assume he doesnt contribute to any charities using Gift Aid (including National Trust, English Heritage membership?) as higher rate tax gets tax relief from that as well.

kidmugsy

worn_out wrote: »

His financial advisor knew of his higher tax status but didn't say anything about having to contact HMRC to get his 'other' 20% back from his personal pension contributions.

I hope he sacked him.