Tax refund on pension contribution

Liffy99

Perhaps I was expecting too much . . .
Early on in this financial year I invested £25k into my personal pension as a lump sum. My pension provider duly credited £31.5k to my account to reflect the 20% government top up.
Last month I wrote to HMRC to claim an additional 20% rebate as a 40% taxpayer. Sadly, rather than receiving a cheque (I hoped for £6250) they changed my tax code.
But a couple of things I am unsure of;
a) They say I can only claim an additional 20% of what I actually paid in (£25k) so the max. I would receive would be £5k. I thought it would be handled in the same way as my pension provider at £6250.
b) My tax code now has an element of pension contribution relief of £12500 (40% of which is the £5k). However this has replaced a previous pension element that existed before I ceased regular contributions to my pension plan.
So I doubt I will receive the full, additional 20% top up at all. As my only income at the moment is my NHS pension I received a £709 rebate this month and my pension income has increased by £80/mth in light of the tax code change. So this financial year I am likely to receive a total of about £1100.
This is probably all correct (it just gets so convoluted) so perhaps I'll just have to live with the disappointment. Makes a bit of a contrast to all those media articles etc about how a £10k pension payment will only costs a 40% taxpayer £6k. I calculate my £25k payment will cost about £17650 rather than £15k !

Linton

I am unclear about your circumstances....

When you contribute £25K into a private pension that is regarded as a gross contribution of £31250. 20% of £31250=£6250. So you pay £25000 and the £6250 basic rate tax is added to your pension by HMRC.

Now if you are due a full £6250 higher rate rebate on the whole of the contribution that would mean you have a gross income in this tax year of at least £45000+£31250=£76250 assuming you didnt pay into any other pension. Do you?

Also, to contribute £31250 into a pension you would need earned income (pension income doesnt count) of at least that amount in this tax year, again assuming you didnt pay into any other pension. Do you?

These figures seem confusing when you say that your only income is your NHS pension.

If the conditions outlined above do all apply you will receive a total of £6250 higher rate tax rebate either via your tax code and/or by an explicit refund when HMRC sort out the taxes after the end of this tax year.

xylophone

I am unclear about your circumstances....

NHS redundancy package.

https://forums.moneysavingexpert.com/discussion/comment/72374576#Comment_72374576

Dazed_and_confused

If you wanted the extra tax relief in a lump sum you should have waited until the (tax) year had finished and HMRC would either have reviewed the year as a whole or you would need to complete a tax return.

If you tell HMRC about a change mid year and have an ongoing income then any adjustment will normally be done through your tax code. If they didn't do that then people woukd complain about them delaying refunds.

a). Someone is getting confused. You don't actually claim a set amount of extra pension relief, the amount of 20% tax you can pay is increased by the gross contribution which in turn reduces the amount of 40% tax paid. So if you only pay a tiny bit of 40% tax then the extra relief due will be small. But from your original post you are likely to get the full benefit as you were originally saying you would have well over £76k taxable income this year.

Are you able to supply details of your expected taxable income this year?

It's a bit unclear from this and your previous post if you will have wages, lump sum (no need to mention the tax free element) and pension or just lump sum and pension?

NordicNoir

Liffy99 wrote: »

...My tax code now has an element of pension contribution relief of £12500 (40% of which is the £5k). However this has replaced a previous pension element that existed before I ceased regular contributions to my pension plan...

Are you saying that your code previously included an amount of tax relief for expected SIPP contributions that you did not in fact make and that the lump sum will be the only SIPP contributions for the year? If that is the case, you will have received some of the tax relief on the lump sum already via your old tax code. What amount was included in your tax code previously?

If you are expecting to save 40% tax on the whole lump sum, I would have expected the adjustment to your tax code to be £15,625 (£31,250 halved) and not £12,500. Are you sure that HMRC have been told the correct amount of the lump sum (it should be the gross figure, not the net).

Liffy99

Thanks for the responses. I'll try to answer.
1) Total gross income this year is about £130k largely due to a redundancy payment (yippee - now I have to do a tax return !). I've already paid about £40k in tax (on redundancy, salary and NHS pension).
2) Previous tax code did have an element of tax relief on pension carried over from last year (by HMRC) I assume, so this has been replaced by the £12500 (it was a little under half of that).
3) Seems I need to question HMRC about the £12500 figure though. I of course stated I had made a (net) payment of £25k and that my pension provider had already reclaimed a further £6250 in tax relief at 20%. Is it a case of the telephone assistant not realising that my £25k should be translated into a £31250 gross figure ?
Thanks again

Dazed_and_confused

If you have quoted £25k then they have probably worked things out based on that rather than the actual contribution of £31250.

"Total goss income" is irrelevant for tax purposes.

Taxable income and adjusted net income are what will be of interest in your circumstances. Adjusted net income is particularly important given the strong possibility of you losing your personal allowance.

But assuming taxable income is well in excess of £100k you should ultimately get the maximum possible benefit from the SIPP payment (40% tax relief plus potential bonus of keeping some of your personal allowance which saves even more).

Liffy99

Taxable income would be about £106k (taxable part of redundancy, pension and salary for Pärt year). Why would I lose my personal allowance ?
Things seem to be getting worse and worse . ...

Linton

Liffy99 wrote: »

Taxable income would be about £106k (taxable part of redundancy, pension and salary for Pärt year). Why would I lose my personal allowance ?
Things seem to be getting worse and worse . ...

See https://www.gov.uk/income-tax-rates/income-over-100000

Perhaps you could put more money into the pension to get the income below £100K.

Dazed_and_confused

Taxable income would be about £106k (taxable part of redundancy, pension and salary for Pärt year).

What's happened to the NHS pension you mentioned in the op on this thread? And any other taxable income you might get this year needs to be counted, for example savings interest.


Perhaps you could put more money into the pension to get the income below £100K.

You cannot reduce your "income" to below £100k by contribution to a SIPP. You will always be taxed on whatever your taxable income is however you may be able to reduce your "adjusted net income" which is a separate things which determines the amount of your personal allowance.

Liffy99

The NHS pension is /was a tax free lump sum and annual income. The latter counted as part of the £106k. My £25k payment was into a personal pension (AVC, not SIPP).
Wouldn’t the payment of £25k into the AVC have reduced my adjusted net income to below the £100k (£81k) ?