Check pension maths for 2019/2020

tigerspill

Hi folks,

I am planning to leave work - final day 30/4/19.

I want to max out my pension contribution through mu company in the new FY before I leave.

I will have the normal £40,000 annual allowance plus £5,000 carry over from 2018/2019. So have a total allowance of £45,000.

The Standard Life pension I will be using will assume I am a BRT and automatically add tax relief at 20% (in effect adding 25% I believe to the amount I put in). I tested this out with a £500 payment this year and they added £125.

Because of a large redundancy payment all this £45K will be at 40% HRT so I will have to claim the rest back in my SA.

So here is what I think I need to do.

1. Put £27,000 into the pension in April 2019.
2. SL will immediately add the 25% of £6.750 giving a total of £33,750 in the SL pension at that point.
3. I then complete my 2019/2020 SA in April 2020 and claim £11,250 back and they will make a direct payment to me of this amount.

I dont plan to make any other pension contributions next FY.

Have I got this correct?
I believe I can also ask for this sooner than doing the SA over a year away, but that's question for another day. At this point I just need to get the process and calculations correct to maximise the pension contribution.

Thanks

BoGoF

Confused why you think you will get £11,250 back via HMRC.

Your gross contribution of £33,750 has already had 20% tax relief. You would only get a further 20% from HMRC of £6,750.

Albermarle

The higher rate tax relief ( £6,750 as said above ) will just be paid back direct to you and is not included in the calculation of annual allowance .
So in fact you can add more than you thought.

BoGoF

tigerspill wrote: »

Hi folks,

I am planning to leave work - final day 30/4/19.

I want to max out my pension contribution through mu company in the new FY before I leave.

I will have the normal £40,000 annual allowance plus £5,000 carry over from 2018/2019. So have a total allowance of £45,000.

The Standard Life pension I will be using will assume I am a BRT and automatically add tax relief at 20% (in effect adding 25% I believe to the amount I put in). I tested this out with a £500 payment this year and they added £125.

Because of a large redundancy payment all this £45K will be at 40% HRT so I will have to claim the rest back in my SA.

So here is what I think I need to do.

1. Put £27,000 into the pension in April 2019.
2. SL will immediately add the 25% of £6.750 giving a total of £33,750 in the SL pension at that point.
3. I then complete my 2019/2020 SA in April 2020 and claim £11,250 back and they will make a direct payment to me of this amount.

I dont plan to make any other pension contributions next FY.

Have I got this correct?
I believe I can also ask for this sooner than doing the SA over a year away, but that's question for another day. At this point I just need to get the process and calculations correct to maximise the pension contribution.

Thanks

If your intention is to fully utilise the available £45,000 you will need tp make a payment of £36,000 which will receive £9,000 tax relief at source giving a gross of £45,000. You will receive a further £9,000 via your Tax Return.

Dazed_and_confused

HMRC do not pay an "extra 20%" on relief at source contributions.

The gross amount of the contribution (£625 in the test example in the op) increases the amount of basic rate tax payable, which in turn reduces the amount of any higher rate tax payable.

This could benefit the op by 20% but it all depends on their total taxable income in the 2019:20 tax year which we don't seem to know much about yet.

And the potential for any in year refund probably depends on whether there is a new source of PAYE income, either a job or pension.

tigerspill

OK - I am now confused as to how much I put in.

Is it £36,000?
SL will add the 25% of £9,000 giving the total of £45,000.
Then I claim a further £9,000 tank on my SA?

Would this then make my total benefit t0 £54,000 by actually putting in £36,000?

Sorry if I am being dumb here.

tigerspill

Dazed_and_confused wrote: »

HMRC do not pay an "extra 20%" on relief at source contributions.

The gross amount of the contribution (£625 in the test example in the op) increases the amount of basic rate tax payable, which in turn reduces the amount of any higher rate tax payable.

This could benefit the op by 20% but it all depends on their total taxable income in the 2019:20 tax year which we don't seem to know much about yet.

And the potential for any in year refund probably depends on whether there is a new source of PAYE income, either a job or pension.

My total taxable pay will be £106,500

This does NOT include the £30K I will get tax free as part of the redundancy.

And I am assuming no additional taxable income during the year.

BoGoF

Dazed_and_confused wrote: »

HMRC do not pay an "extra 20%" on relief at source contributions.

The gross amount of the contribution (£625 in the test example in the op) increases the amount of basic rate tax payable, which in turn reduces the amount of any higher rate tax payable.

This could benefit the op by 20% but it all depends on their total taxable income in the 2019:20 tax year which we don't seem to know much about yet.

And the potential for any in year refund probably depends on whether there is a new source of PAYE income, either a job or pension.

OP clearly states he will pay sufficient 40% tax to cover a £45k pension contribution.

BoGoF

tigerspill wrote: »

OK - I am now confused as to how much I put in.

Is it £36,000?
SL will add the 25% of £9,000 giving the total of £45,000.
Then I claim a further £9,000 tank on my SA?

Would this then make my total benefit t0 £54,000 by actually putting in £36,000?

Sorry if I am being dumb here.

No the £9k via SA is not added on to the £45k.

Look at it this way, as a higher rate taxpayer a gross contribution of £45k means it should only cost you £27k (45k at 60%). You pay £36k which is topped up to £45k.You then pay less tax of £9k - Net result is costs you £27k.

tigerspill

BoGoF wrote: »

No the £9k via SA is not added on to the £45k.

Look at it this way, as a higher rate taxpayer a gross contribution of £45k means it should only cost you £27k (45k at 60%). You pay £36k which is topped up to £45k.You then pay less tax of £9k - Net result is costs you £27k.

Thanks for this.

I am trying to get the last bit clear in my head - the "less tax on £9K".

I will be receiving the payment in the May payroll after I leave. This will be taxed as PAYE. My pension payment wont be through payroll as I am doing this direct myself with SL. So the PAYE wont take account of any of this.
So I will be paying PAYE tax on it all. So I thought I would get this back on my SA.

So I pay in £36K.
SL top up to the £45K
When I complete my SA I would complete the section related to "Pension Contributions" and I believe there are two options - where there was no tax added and where BRT was taken into account (cant remember the wording). I would complete this entering £45,000 (BRT option) and this would result in a calculation showing a tax overpayment of £9,000 and hence I would get a payment of this amount from HMRC.

BoGoF

Yes, once you do your SA your basic rate band will be extended by £45,000 and your tax recalculated on that basis.