Pension tax rebate - do I have to put it in a pension?

john-zxr

Hello,

I recently received some money from HMRC because I had only been receiving basic rate tax relief on my pension when I should have been getting higher rate.

The money came through in the form of a cheque after I wrote to HMRC and requested it.

My question is, what can I do with that money? I ask because I would have thought I should pay it into my pension. This is money that should have been in my pension anyway, so strictly speaking I should not have access to it until I retire. However, HMRC made no stipulation that is what I have to do.

Also, if I did pay it into my pension as a private contribution, then surely I could then claim tax relief on it? And that doesnt seem right at all.

Hoping someone can offer some guidance.

Many thanks

John

hugheskevi

You have already put the money into the pension, so the refund is yours to do with as you wish.

For example, to end up with £100 in your pension you send £80 to your pension provider. They add £20 basic rate relief, and you receive a £20 refund from HMRC. That means that you have put £60 of post-tax income into your pension, and received £40 of income tax relief.

That is all right and proper, as you initially received £100 of earned income which had 40% tax applied, and so you received £60 (ignoring National Insurance and any other deductions). You then put that £60 into a pension and got the income tax paid back, albeit in two ways (relief at source and HMRC refund).

Also, if I did pay it into my pension as a private contribution, then surely I could then claim tax relief on it?

As it is your money, it is no different to if you paid money from your bank account to the pension, and yes, you get tax relief on it.

john-zxr

Got it.

Many thanks