Pension Lump Sum Contribution

50_Hertz

Hello,

This is my first post on the forum and I would appreciate some advice.

My wife belongs to a Local Government Pension Scheme (LGPS) and has recently made a lump sum contribution to the scheme to purchase 3 additional years worth of benefits. This has cost £10500 and we paid using a portion of savings that we have.

She currently works part time and earns £14000 per year.

So, during the financial year 2018 to 2019, she has earned a gross amount of £14000, paid approximately £400 in income tax and contributed £10500 + Standard pension contributions deducted from salary to the LGPS.

Is the lump sum contribution she made to the LGPS eligible for tax relief?

1) Can she claim 20% of it (£2000) back from HMRC?

or

2) Should the £10500 be deducted from her gross 2018 - 2019 earnings meaning that she earns approximately £3500 during 2018 -2019 and therefore should not have paid any tax and is therefore due a refund of £400.

or

3) Is she due nothing back at all.

Your advice and thoughts would be welcome.

Thank you.

Marcon

If you wish to buy extra pension by paying a one-off lump sum you can do so either via your pay or by making payment directly to your pension fund. If you choose to make payment directly to your pension fund, you will need to arrange tax relief directly with HMRC as the contributions are not being deducted from your pay. You can do this via your self assessment tax return or by calling or writing to HMRC.

Tax relief is available on all pension contributions up to 100% of your taxable earnings.

Taken from https://www.lgpsmember.org/arm/already-member-extra.php

50_Hertz

Thank you for that. I’m just wondering how it would work. If she has only paid about £400 in tax on her earnings and the relief due on £10500 of pension contributions is greater than £400.

xylophone

A person's sole income could be just his salary of (say) £10,000 a year - he would therefore pay no tax because he would be within his PA.

Nevertheless, he could make a net contribution of £8000 to a personal pension and the provider would claim tax relief of £2000.

xylophone

And see also https://forums.moneysavingexpert.com/discussion/5882091/tax-relief-of-pension-lump-sum-contribution

Post 9 in particular.

50_Hertz

Thank you for that information. It’s really helpful and gives me a good start. 👍

Marcon

xylophone wrote: »

A person's sole income could be just his salary of (say) £10,000 a year - he would therefore pay no tax because he would be within his PA.

Nevertheless, he could make a net contribution of £8000 to a personal pension and the provider would claim tax relief of £2000.

But this isn't a personal pension...so the provider can't claim tax relief on behalf of OP's wife.

jsinc

As Marcon wrote, it's the LGPS so for tax relief purposes max contribution = taxable earnings not total earnings.

i.e. 20% of taxable earnings is the most you can claim back in tax relief = the £400 tax paid

xylophone

But this isn't a personal pension...so the provider can't claim tax relief on behalf of OP's wife.

I didn't say that it was - I was just pointing out that a person need not be a taxpayer to receive tax relief on pension contributions.

Dazed_and_confused

One option to increase the overall tax benefit would be for the op's wife to apply for Marriage Allowance for 2018:19.

Her income, net of the pension contribution is so low she will remain not liable to tax (and get the £400 refund) but at least the op could then be in line for a tax refund of c£238 from the Marriage Allowance tax credit he would get.

And when your wife writes to HMRC with details of the pension contribution she needs to make it as crystal clear as possible that she has not contributed to a "relief at source" pension but has made a gross contribution where no tax relief was allowed at source. And it was not a "net pay" contribution either. This type of contribution crops up every now and again on this and the Cutting Tax board as ones HMRC struggle to get right.

xylophone

And when your wife writes to HMRC with details of the pension contribution she needs to make it as crystal clear as possible that she has not contributed to a "relief at source" pension but has made a gross contribution where no tax relief was allowed at source. And it was not a "net pay" contribution either. This type of contribution crops up every now and again on this and the Cutting Tax board as ones HMRC struggle to get right.

You made similar observations in linked thread in post 5 above.