40% Tax Relief

Theta101

Hi

I'm trying to work out exact figures of tax relief on a salary of £45,000 (before tax).
Tax code 1100.
40% tax starts at £32,000.
So £2,000 would be taxed at 40%.
I want to make contributions of £300/month (£3,600/year).
I understand 20% tax relief will be calculated via my PAYE pay slip.
And I have to reclaim the 40% tax relief via self assessment.

But how is that 40% calculated?

Many thanks.

jem16

Theta101 wrote: »

I understand 20% tax relief will be calculated via my PAYE pay slip.
And I have to reclaim the 40% tax relief via self assessment.

But how is that 40% calculated?

Many thanks.

If your contributions are taken from your salary before tax then you have nothing more to reclaim as you are getting full tax relief at source. Is that what is happening?

If the contributions are taken after you are taxed, which is not the usual way, then 20% tax relief would be added by the pension provider and the other 20% reclaimed from HMRC. However it would only be 20% of £2000 as that is all you are paying higher rate tax on.

Theta101

"Is that what is happening?"

It's a new job starting next month.
I'm trying to work out exactly what I'll get in my pay slip and what's the best contribution to make.

I understand where you're coming from, but it's not as straight forward as that:mad:

I have found a similar example to me on the ScottishWidows Tax Calculator site.

Still trying to apply the "Lindsay" example to me.

Thanks

AllyMac

40% tax starting at £32K is the 2015/16 allowances isn't it?
For 2016/17 I think it is personal allowance then add £32K - so more like £43K.

I claim my additional 20% relief via HMRC (first 20% is done by PAYE). When I rang, for a previous unclaimed year they sent a cheque. For current year they asked me to estimate my contributions, and then adjusted my personal allowance tax code to account for it.

Theta101

Jem16

Sorry YOU have cleared the mist.
You arrived at the £400 MUCH simpler than the SW site.

Thanks very much.

jem16

Theta101 wrote: »

I understand where you're coming from, but it's not as straight forward as that:mad:

Why not?

Most company pension contributions are taken before tax so there would be no extra tax to claim.

Some are taken from net pay and you claim as I explained.

The scheme booklet should tell you which will apply.

As to the Lindsay example, if extra tax relief is due then it is 20% of £2000 as that is what you would pay higher rate tax on - I did edit the amount in case you hadn't noticed.

However it all hinges on how the contributions are taken whether any claim is necessary or not.

Theta101

Thanks AllyMac.

I understand it now.

jem16

AllyMac wrote: »

40% tax starting at £32K is the 2015/16 allowances isn't it?

No - that's the 40% tax threshold for 2016/17.

For 2016/17 I think it is personal allowance then add £32K - so more like £43K.

The OP said that.

I claim my additional 20% relief via HMRC (first 20% is done by PAYE). When I rang, for a previous unclaimed year they sent a cheque. For current year they asked me to estimate my contributions, and then adjusted my personal allowance tax code to account for it.

That's fine if it's a Relief at Source pension contribution. We don't know if this applies yet.

jem16

Theta101 wrote: »

Jem16

Sorry YOU have cleared the mist.
You arrived at the £400 MUCH simpler than the SW site.

Thanks very much.

No problem but you do need to clarify if there will be any additional tax relief to claim by finding out what kind of scheme it is. Is it a Defined Benefit or Defined Contribution scheme?

Theta101

"Defined Contribution scheme?"

It's a defined contribution scheme.

jem16

Theta101 wrote: »

"Defined Contribution scheme?"

It's a defined contribution scheme.

Ok it's possible for both methods to be used. You will therefore need to check with your new job.