Tax relief on Pension Contributions

jim8888

I've been mucking around on the Hargreaves Lansdown pension relief tax calculator. If I put in that my income is 50K a year and that I want to contribute 40k into my pension, it informs me that I have to deposit 32k because the government chips in 8k in tax relief at 20%. It then says that as a 40% tax payer you can claim back an extra £730. But I thought as a higher band tax payer, you'd be entitled to a further 20% tax relief on your contribution of 32k?
If I change the income to 100k then it does give you an additional 20k tax relief. So how is this being worked out at the 50k income level?

HappyHarry

jim8888 wrote: »

I've been mucking around on the Hargreaves Lansdown pension relief tax calculator. If I put in that my income is 50K a year and that I want to contribute 40k into my pension, it informs me that I have to deposit 32k because the government chips in 8k in tax relief at 20%. It then says that as a 40% tax payer you can claim back an extra £730. But I thought as a higher band tax payer, you'd be entitled to a further 20% tax relief on your contribution of 32k?
If I change the income to 100k then it does give you an additional 20k tax relief. So how is this being worked out at the 50k income level?

You only get 40% tax relief on your income that you paid 40% tax on.

I.e. if you are assuming standard personal allowance of £11,850 then with a basic rate tax band of £34,500 the you will only be paying higher rate tax on £3,650.

Basic rate tax relief is claimed on all your contribution by your pension provider, so you will be able to claim an extra 20% via your tax return on that £3,650. 20% of £3,650 is £730.

xylophone

https://www.mileiq.com/en-gb/blog/2018-uk-income-tax-rates-brackets/

You only receive higher rate relief to the extent that you have paid higher rate tax on the contribution....

Dazed_and_confused

Tax relief on pension contributions doesn't work how you have envisaged.

By paying into a relief at source pension all that HMRC will then do is increase the amount of basic rate tax you can pay by the gross contribution (your payment plus the basic rate tax relief added by the pension company).

This can in turn reduce the amount of higher rate tax you have to pay. So it could save you an additional 21% (or 20% if not Scottish resident for tax purposes) but there is no automatic extra amount due. It all depends on your overall tax situation for the tax year you made the payment in.

Paul_Herring

jim8888 wrote: »

I've been mucking around on the Hargreaves Lansdown pension relief tax calculator. If I put in that my income is 50K a year and that I want to contribute 40k into my pension, it informs me that I have to deposit 32k because the government chips in 8k in tax relief at 20%. It then says that as a 40% tax payer you can claim back an extra £730. But I thought as a higher band tax payer, you'd be entitled to a further 20% tax relief on your contribution of 32k?
If I change the income to 100k then it does give you an additional 20k tax relief. So how is this being worked out at the 50k income level?

You only get 40% relief on money that was originally taxed at 40%.

So, from https://listentotaxman.com/50000?



You pay £1,456.40 income tax at the 40% rate, half of that gets claimed by the company under the 20% relief, leaving £728.20 to claim back from HMRC.

Albermarle

If I have worked it out correctly you would need to earn £67K a year to get the full tax relief.