Pension / Tax Calculations

tigerspill

Hi,

I have elected to take a voluntary redundancy package at the end of April.

I want to put £40K of this into my Standard Life pension (I have no carry over and this will be my only pension payment in 19/20).

This is a work DC pension, but the only way my company allows a payment is through payroll which in this case I cant do as when I get my VR payment it will be May, and I won't be an employee at that point. I have confirmed this.

I called SL and they said I can make a direct payment during April before I leave.

I am trying to confirm the maths around what payment I make.

I will be into HRT for the full £40K. SL have confirmed that they assume I am a BRT payer at 20% and add this on when they get the payment.

So the way I think this works is as follows -
1. I make a payment go £32,000 (80% of the 40K)
2. Standard life make this up to the £40K (the 20% BRT tax of £8000)
3. After this, I think I need to get the remaining 20% higher rate tax back from HMRC myself (£8000). Either through my SA tax return or by writing to them specifically on this and they will send the rebate.

Have I got this correct?

Thanks

Albermarle

So the way I think this works is as follows -
1. I make a payment go £32,000 (80% of the 40K)
2. Standard life make this up to the £40K (the 20% BRT tax of £8000)
3. After this, I think I need to get the remaining 20% higher rate tax back from HMRC myself (£8000). Either through my SA tax return or by writing to them specifically on this and they will send the rebate.

Yes that looks OK. With HMRC you will probably be better to call them if you are not filling in a SA .
Also you will need to tell SL in what funds you want the money to go to .

tigerspill

Albermarle wrote: »

Yes that looks OK. With HMRC you will probably be better to call them if you are not filling in a SA .
Also you will need to tell SL in what funds you want the money to go to .

Thanks for this. Yes, I will ned to allocate to the funds I want.

I do fill in an SA, but was hoping I could get the rebate for this specific element sooner rather than waiting until April 2020 co complete SA.

zagfles

Presumably you're in the company pension scheme, so surely there'll be a company pension contribution/input for your final month, which will be in the 2019/20 tax year? If so you'll need to take that off the £40k if you have no carry forwards available and you want to avoid exceeding the annual allowance.

Also have you checked the AA taper? I don't fully understand this but you must be expecting taxable income of at least £90k if you think you'll get HRT relief on the whole £40k. One of the thresholds for the taper is £110k.

Dazed_and_confused

3. After this, I think I need to get the remaining 20% higher rate tax back from HMRC myself (£8000). Either through my SA tax return or by writing to them specifically on this and they will send the rebate.

I don't think there is any way you can get any additional tax relief other than through your Self Assessment return.

There is no specific extra 20% pension relief, the pension contribution simply increases the amount of basic rate tax you can pay, which in turn can reduces the amount of higher rate tax relief.

In very straightforward cases this can essentially mean you do get the benefit of an additional 20% but it isn't always the case.

What income will you have post redundancy? A revised tax code may be an option but that's depending on you having a PAYE source of income.

And that is only provisional, you would still have to include details on your Self Assessment return.

squirrelpie

I don't think there is any way you can get any additional tax relief other than through your Self Assessment return.

According to https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief


"You can also call or write to HMRC to claim if you pay Income Tax at 40%."

tigerspill

zagfles wrote: »

Presumably you're in the company pension scheme, so surely there'll be a company pension contribution/input for your final month, which will be in the 2019/20 tax year? If so you'll need to take that off the £40k if you have no carry forwards available and you want to avoid exceeding the annual allowance.

Also have you checked the AA taper? I don't fully understand this but you must be expecting taxable income of at least £90k if you think you'll get HRT relief on the whole £40k. One of the thresholds for the taper is £110k.

You are correct - I was using the £40K to make the calculation and explanation simpler. I will have a contribution in April which will reduce the £40K as you say. But using the actual number makes the discussion more complex than using a nice round number.

As you say, with the redundancy payment, my taxable income for 19/20 will be between the 90K and the £110K you mention (after removing the £30K tax free allowance allows in a redundancy payment.

Sounds like I need to look ate this taper.

tigerspill

Dazed_and_confused wrote: »

I don't think there is any way you can get any additional tax relief other than through your Self Assessment return.

There is no specific extra 20% pension relief, the pension contribution simply increases the amount of basic rate tax you can pay, which in turn can reduces the amount of higher rate tax relief.

In very straightforward cases this can essentially mean you do get the benefit of an additional 20% but it isn't always the case.

What income will you have post redundancy? A revised tax code may be an option but that's depending on you having a PAYE source of income.

And that is only provisional, you would still have to include details on your Self Assessment return.

I am not planning on having paid work for the remainder of the 19/20 FY.

I agree, regardless of whether I can get some of the tax back by contacting the HMRC - I will need to record this on my SA.

I guess what I am trying to see here is if there is a way to get the tax back sooner than completing the SA.

tigerspill

squirrelpie wrote: »

According to https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief


"You can also call or write to HMRC to claim if you pay Income Tax at 40%."

Thanks for this. I will read through this in detail later this afternoon.

Thorsson

This is a redundancy payment, therefore should not be taxed up to £30k. I don't see how you can get tax relief when you haven't paid any tax, so I would have thought that pension tax relief is restricted to £10k.

Dazed_and_confused

I don't see how you can get tax relief when you haven't paid any tax

I think you'll find a lot of people posting on this board are doing just that.

Plenty get £720 tax relief when paying no tax and it's not beyond the realms of possibility to contribute £10k and receive £2.5k in tax relief (2019:20 tax year values).