Check pension maths for 2019/2020

tigerspill

BoGoF wrote: »

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

Thanks for this.

I think the new SA window opens next week so I think I can play around with it for a bit (even if it is with the wrong year rates etc.).

Dazed_and_confused

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.

In that case the pension contribution will reduce your "adjusted net income" to less than £100k and as a result you will retain your entitlement to the full Personal Allowance in 2019:20

As a result part of your contribution will effectively attract 60% tax relief (this is inclusive of the 20% relief added by Standard Life).

Dazed_and_confused

BoGoF

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

I wasn't 100% certain if the op just meant their April payment would have 40% tax deducted, being month 1 of the tax year. But clearly plenty of higher rate tax is going to be paid!

Dazed_and_confused

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

That isn't going to happen as the pension contributions (which do not entitle you to an extra 20%, they increase the amount of basic rate tax payable) are just one element of your Self Assessment calculation.

In reality you will be paying some 45% tax in your April pay and based on the information posted so far that isn't going to be due so there will be some tax back from that. And you have 11 months worth of unused Personal Allowance as well.

tigerspill

Dazed_and_confused wrote: »

That isn't going to happen as the pension contributions (which do not entitle you to an extra 20%, they increase the amount of basic rate tax payable) are just one element of your Self Assessment calculation.

In reality you will be paying some 45% tax in your April pay and based on the information posted so far that isn't going to be due so there will be some tax back from that. And you have 11 months worth of unused Personal Allowance as well.

So I think the 45% tax issue comes from the fact I will have one huge payment in one month (actually May) and that they would average this and my April pay ( £106,000 for May and £1700 in May) - giving an average monthly payment of over £50K - giving an assumed £600K per year?

I dont understand your first comment though. Are you saying this wont work for me?

In terms of maximising pension for the year - is it still the £36K I put in from my cash?

Dazed_and_confused

No, I mean there is nowhere on your Self Assessment calculation that is going to show pension tax relief of £9,000.

You are not entitled to an extra 20% as a result of this pension contribution. You are entitled to a bigger basic rate tax band. Which in turn will reduce the amount of higher rate tax payable. In an incredibly simple situation where someone has paid the correct amount of tax to the penny this might result in a refund of 20% of the gross contribution but that is highly unlikely as it the pension contribution is just one element of your overall Self Assessment calculation.

In reality you will probably be entitled to a larger refund as you have 10 months of Personal Allowance which won't have been used (assuming final payslip is in May) and you will have paid some 45% tax which isn't ultimately going to be due.

From what you originally posted I cannot see how you could contribute more than £36k (£45 gross with the basic rate tax relief added by the pension company).

Did you file a Self Assessment return for 2017:18?

tigerspill

Dazed_and_confused wrote: »

No, I mean there is nowhere on your Self Assessment calculation that is going to show pension tax relief of £9,000.

You are not entitled to an extra 20% as a result of this pension contribution. You are entitled to a bigger basic rate tax band. Which in turn will reduce the amount of higher rate tax payable. In an incredibly simple situation where someone has paid the correct amount of tax to the penny this might result in a refund of 20% of the gross contribution but that is highly unlikely as it the pension contribution is just one element of your overall Self Assessment calculation.

In reality you will probably be entitled to a larger refund as you have 10 months of Personal Allowance which won't have been used (assuming final payslip is in May) and you will have paid some 45% tax which isn't ultimately going to be due.

From what you originally posted I cannot see how you could contribute more than £36k (£45 gross with the basic rate tax relief added by the pension company).

Did you file a Self Assessment return for 2017:18?

I did complete a 17/18 SA return. It was pretty simple as all pension payments were through my company salary sacrifice. My pension pension trustee has send me an Input amount" statement for 17/18 and a draft for 18/19 to give me an indication - but I cant see why this would change as all the details are fully known at this point.

I understand that this is only one element of a tax return. I guess I was trying to simplify it to this one element to understand how the maths works to allow we understand how much to put in to maximise the tax benefit and to understand the size of this benefit. And I do realise this will be adjusted for other things. But this is going to be by far the vast majority (bar maybe a thousand or two - no more) of what will be on my SA for 19/20.
So I was trying to understand the basics of this element by ignoring other aspects which will only make the difference of maybe a few £100s.

badmemory

If it is an employers DC scheme then you MAY need to ensure that they pay over the contribution BEFORE you retire or the scheme may return the payment. Hopefully someone will come back & tell me I am totally wrong.

tigerspill

badmemory wrote: »

If it is an employers DC scheme then you MAY need to ensure that they pay over the contribution BEFORE you retire or the scheme may return the payment. Hopefully someone will come back & tell me I am totally wrong.

It is an employee DC scheme.
And the reason you give above is why I need to move immediately.
SL say the payment will be credited and the BRT top up will happen within 24 hours. This is why I did a test payment and it all happened as they explained.
So hopefully this will work out fine before the end of April.

Dazed_and_confused

I did complete a 17/18 SA return

So you can probably have a play around with your 2017:18 return and see how relief at source pension tax relief is included within the calculation. And the additional imapct if you make your income greater than £100k.

But don't forget to discard any changes