Pensions tax relief given job income at 40% threshold and savings topple

TrustyOven

Hi,

So just wondering.

I am at a smidge under the 40% income threshold (42,999.97 ish annual income), I have pension contributions, which I assume to be getting the 20% HMRC tax relief.

I have been doing overtime and I also have interest received in non-tax sheltered accounts, so I expect that this will push me over the 40% income tax threshold at the end of this fiscal year.

What happens regarding tax relief on pension contributions? Does HMRC automatically top up the contribs to the pension account? How is this done?

Thanks!

jamesd

If it is not a work pension using salary sacrifice or deducting from gross pay, the pension scheme will add 25% to what you pay in to give you the 20% basic rate tax relief. That is the gross amount into the pension. You tell HMRC that amount, then increase your basic rate band by the amount and then send a new tax code which gives you the higher rate relief. You can tell them at any time in the tax year how much you expect it to be for the whole year and they will adjust for the whole year. The pension schemes reclaim this from HMRC in what's known as a "relief at source" scheme.

Gross pay deductions work similarly but the pension scheme doesn't add any more. Tell HMRC the anticipated gross.

Salary sacrifice deducts before both income tax and NI and gives you all of the relief you're entitled to. Do not tell HMRC the amount paid into this type of pension. You are entitled to no more relief and if they wrongly think it's normal contributions they may give you relief you're not entitled to and have to claim it back from you later.

TrustyOven

Thanks for your reply.

jamesd wrote: »

If it is not a work pension using salary sacrifice or deducting from gross pay, the pension scheme will add 25% to what you pay in to give you the 20% basic rate tax relief. That is the gross amount into the pension.

This appears to be what's happening. I'm seeing approx £71 as employee pension going out of my payslip. Online, I can see that approx £18 gets added, and approx £89 of pension securities are being bought.
This is approx 20.2% tax relief.

The figures pretty much match up with the values from https://listentotaxman.com/ when all the inputs are entered.

jamesd wrote: »

You tell HMRC that amount, then increase your basic rate band by the amount and then send a new tax code which gives you the higher rate relief.

Not sure what that means. Won't HMRC already know how much I am paying in to the pension?

jamesd wrote: »

You can tell them at any time in the tax year how much you expect it to be for the whole year and they will adjust for the whole year. The pension schemes reclaim this from HMRC in what's known as a "relief at source" scheme.

Thanks, I'll have a read of that - but it seems complex.
I can't quite tell HMRC what I expect the income to be as I am doing ad-hoc overtime. I would only know after the current tax year ends.

jamesd wrote: »

Gross pay deductions work similarly but the pension scheme doesn't add any more. Tell HMRC the anticipated gross.

I'll keep this in mind. Though it doesn't seem that this is the scheme that applies to me?

jamesd wrote: »

Salary sacrifice deducts before both income tax and NI and gives you all of the relief you're entitled to. Do not tell HMRC the amount paid into this type of pension. You are entitled to no more relief and if they wrongly think it's normal contributions they may give you relief you're not entitled to and have to claim it back from you later.

I don't think it is a salary sacrifice scheme, so this probably doesn't apply to me, but it's useful for any other readers to know


One other thing. This will be the first tax year that I will be entering the 40% income tax band, and I'm really not sure if there's anything extra that I need to do or know.

Is the "The Employment, Jobseeking & Training Board"a good place for me to ask further questions?

e.g. Do I need to fill in a self assessment tax return?
Given that I've made a payment to a registered charity, and get savings interest it seems I may need to do a self assessment...

jamesd

TrustyOven wrote: »

Won't HMRC already know how much I am paying in to the pension?

In theory they could sometimes but in practice they do not link the relevant systems together. They also can't know the future to deal with contributions you plan to make later in the tax year but you can tell them about those contributions in advance.

TrustyOven wrote: »

I can't quite tell HMRC what I expect the income to be as I am doing ad-hoc overtime. I would only know after the current tax year ends.

You don't have to be perfect when you tell HMRC what you expect. If it's practical to make a good estimate you can do that.

Khrisjun

Hi,

Dont worry about having to fill in a self assesment, If the effect is small (as described by what you have written) then a phone call with a rough estimate will do. When I used to get un taxed savings income before the personal interest allowance and paid into a pension when in 40% tax band I just phoned it through to get an increase of ~500 in my personal tax code.

I think i read that if the effect is <£2000 then it can be done over the phone, if its over it would be a self assessment although im not certain where i read that...

TrustyOven

Just been on the phone to HMRC and then to pensions provider.

HMRC says no need for Self Assessment.
When I asked them about the extra pensions tax relief, they said phone the pensions provider.

I then phoned up the pensions provider and they told me to phone HMRC. Sounds like HMRC phone operative doesn't know the procedure?

The employee pensions part of my payslip gets the 20% tax payer uplift in the pension provider automatically (I can see it as a separate credit to my account at the same date as my PAYE employee amount and employer amount).

xylophone

https://forums.moneysavingexpert.com/discussion/5273071

post 17.

Your pension provider should be able to tell you whether they operate" net pay" or "relief at source."

If you are a higher rate payer on a "relief at source" scheme you will need to claim additional tax relief from HMRC.

Dazed_and_confused

Based on this extract from one of your previous posts it seems highly likely you are in a relief at source scheme so you would need to claim the additional tax relief from HMRC.

This appears to be what's happening. I'm seeing approx £71 as employee pension going out of my payslip. Online, I can see that approx £18 gets added, and approx £89 of pension securities are being bought.
This is approx 20.2% tax relief.

And to answer one of your original questions no, any additional tax relief forms part of your overall tax calculation for the year and you get any tax refund due, it doesn't get added to your pension fund.

Does HMRC automatically top up the contribs to the pension account?

Looking back through your posts on this thread it looks like you've got a few things which will affect your tax liability - gift aid, pension relief and interest received to declare so you are probably best off getting all these details together and bringing HMRC up to date with last years actual info along with estimates for this year so they can calculate last years tax and review your current tax code.

If you have employer benefits such as company car or van you will need your P11D certificate as well.

TrustyOven

Dazed_and_confused wrote: »

Based on this extract from one of your previous posts it seems highly likely you are in a relief at source scheme so you would need to claim the additional tax relief from HMRC.

This appears to be what's happening. I'm seeing approx £71 as employee pension going out of my payslip. Online, I can see that approx £18 gets added, and approx £89 of pension securities are being bought.
This is approx 20.2% tax relief.

Yes. I'm not sure how to claim from HMRC. They told me on the phone to contact the pension provider to claim, but the pension provider says to contact HMRC.

Dazed_and_confused wrote: »

And to answer one of your original questions no, any additional tax relief forms part of your overall tax calculation for the year and you get any tax refund due, it doesn't get added to your pension fund.

Does HMRC automatically top up the contribs to the pension account?

Hmmmm ok that's a bit disappointing, i was hoping it would go direct to the pension and SIPP.
So is the usual procedure now to wait to see if they will send me a letter in the post with a cheque?

Dazed_and_confused wrote: »

Looking back through your posts on this thread it looks like you've got a few things which will affect your tax liability - gift aid, pension relief and interest received to declare so you are probably best off getting all these details together and bringing HMRC up to date with last years actual info along with estimates for this year so they can calculate last years tax and review your current tax code.

I've mentioned the interest, but they didn't seem interested to hear about it given that it would have been less than the PSA even for a 40% tax payer.

I forgot to ask about the Gift Aid. I'll ask next time I phone up.

They now have estimate of the expected income for this year, and it should see me in the 20% tax bracket.

Dazed_and_confused

I can only think whoever you spoke to in HMRC either didn't understand the rules or maybe you (inadvertently) confused them by asking about the pension tax relief due rather than the additional/higher rate pension tax relief due??

Anyway the only way you are going to get the additional relief due is from HMRC, the pension provider is correct in this respect. Most people seem able to do it from a phone call but given your experience I think you might be better putting it all in writing. Alternatively phone again, make it clear you are querying the higher rate tax relief and keep fingers crossed you get a better adviser.

Don't understand this,

So is the usual procedure now to wait to see if they will send me a letter in the post with a cheque?

From what you've said about your conversation with HMRC you'll be waiting for ever as the person you spoke to didn't understand what you were trying to achieve!!

TrustyOven

Dazed_and_confused wrote: »

I can only think whoever you spoke to in HMRC either didn't understand the rules or maybe you (inadvertently) confused them by asking about the pension tax relief due rather than the additional/higher rate pension tax relief due??

Anyway the only way you are going to get the additional relief due is from HMRC, the pension provider is correct in this respect. Most people seem able to do it from a phone call but given your experience I think you might be better putting it all in writing. Alternatively phone again, make it clear you are querying the higher rate tax relief and keep fingers crossed you get a better adviser.

Don't understand this,

So is the usual procedure now to wait to see if they will send me a letter in the post with a cheque?

From what you've said about your conversation with HMRC you'll be waiting for ever as the person you spoke to didn't understand what you were trying to achieve!!

Ok a bit confused.
You made it seem as if the higher rate tax relief won't go into the pension wrapper and I will get it in the same way that HMRC pay back any overpayments to income tax: via a letter to me with a giro/cheque. Therefore you made it seem like they would send me a letter and I just need to wait for it, and then take that money after it clears and then pay into the penstion tax wrapper, using up more of my annual allowance (not that I am anywhere near using it all up).

But you now make it seem like it will not go via the cheque route and maybe will enter the pension tax wrapper like a bank transfer?

Their phone lines are now closed, so I will call them again, during the week to check. It could be that I didn't mention higher rate tax releif, and that they assumed it was pension tax relief (which would be odd because I explained that I was calling specifically because this was the first time ever I've gone into the 40% tax band and that I didn't know what was required of me).