Higher rate tax relief confusion

civil12345

Hi, I paid a little higher rate tax relief in 2017-18 and now that I've received my P800 I've tried to cliam back the higher rate tax relief on pension contributions. I'm confused by the figures (see below). I pay into the pension through work and they take off the 20% relief.


Higher rate tax paid: £246.40
Net pension contributions from me: £987.93 (employer matches and makes a larger contribution)
Gross pension from me: £1,234.91


I thought I could claim back 20% of the gross figure, £246.98. As this is higher than the higher rate tax paid, it would actually be that amount, £246.40.


HMRC have told me the refund is £119.60.


Am I doing something wrong here? Thanks

NordicNoir

civil12345 wrote: »

Hi, I paid a little higher rate tax relief in 2017-18 and now that I've received my P800 I've tried to cliam back the higher rate tax relief on pension contributions. I'm confused by the figures (see below). I pay into the pension through work and they take off the 20% relief.


Higher rate tax paid: £246.40 I am assuming that this is the figure from your P800 and not your own calculation?
Net pension contributions from me: £987.93 (employer matches and makes a larger contribution)
Gross pension from me: £1,234.91


I thought I could claim back 20% of the gross figure, £246.98. As this is higher than the higher rate tax paid, it would actually be that amount, £246.40.


HMRC have told me the refund is £119.60.


Am I doing something wrong here? Thanks

You can only claim back the extra half of the 40% relief if you have paid tax at that rate in the first place. In your case, only part of your pension contribution qualifies for the higher rate.

You have paid £246.40 tax at 40%, so effectively the income subject to 40% tax was 246.40 divided by 40 multiplied by 100 = 616.00. Only this amount will qualify for the extra 20% relief rather than the £987.93 that you paid in; 616.00 x 20%= 123.20 extra relief due, not too different to HMRC's figure of 119.60.

TrickyDicky101

Another way to look at it: the Gross pension contribution from you (£1,234.91) already contains half of the tax relief due you on your pay at which you have suffered 40% tax (as it has only cost you £987.93 in net pay). HMRC are repaying you the other half in the £119 (or thereabouts).