Higher Rate Tax Relief

VDOT47

Hi,


Can someone answer a question please? As far as I can tell from reading around the subject, higher rate tax relief on pension contributions can be claimed through submitting a tax return at the end of the year. The tax appears to come back to you either by way of a tax rebate or through an adjustment to your tax code (thus, presumably reducing the tax you pay the following year?).


Either way, the additional tax relief appears to come back to you as money in your pocket, rather than actually in your pension? Is this a correct interpretation?


I suppose that means you can then pay it straight into your pension as soon as your receive it, so it gets in there eventually but a year later than the basic rate tax relief does.


With salary sacrifice does the whole 40% relief go into the pension at the start (thus earning an extra year's growth)?


Thanks!

OldMusicGuy

I don't know about salary sacrifice, but for higher rate tax relief pension contributions they will come back as a refund after the first year you claim them. You then have the choice of refunds or having your tax code adjusted so that you pay less tax throughout the year.

I always opted for refunds because my contributions varied quite a lot from year to year.

Lokolo

VDOT47 wrote: »

Either way, the additional tax relief appears to come back to you as money in your pocket, rather than actually in your pension? Is this a correct interpretation?

Yes

VDOT47 wrote: »

With salary sacrifice does the whole 40% relief go into the pension at the start (thus earning an extra year's growth)?

You don't get tax relief as you haven't paid the tax on the money in the first place. It goes in from your gross.

MallyGirl

plus salary sacrifice gains you the relief from NI on the sacrificed amount as well

menziesthefish

plus salary sacrifice gains you the relief from NI on the sacrificed amount as well

...so long as your employer is willing to add this to your contribution rather than pocket the difference. Not all do, so it's worth asking.

MallyGirl

you always 'save' your NI but whether you get employer NI as well is more variable - I don't but husband does

Dox

Lokolo wrote: »

Yes




You don't get tax relief as you haven't paid the tax on the money in the first place. It goes in from your gross.

Salary sacrifice doesn't 'go in from your gross' - your gross salary is reduced by the amount you are sacrificing and your employer pays the contribution, based on the full amount of salary you have sacrificed. The employer can claim corporation tax relief on the pension contribution, but as you haven't paid any tax of any sort on it, there is nothing to add to your pension pot and nothing to record on your tax return.

Lokolo

Dox wrote: »

Salary sacrifice doesn't 'go in from your gross' - your gross salary is reduced by the amount you are sacrificing and your employer pays the contribution, based on the full amount of salary you have sacrificed. The employer can claim corporation tax relief on the pension contribution, but as you haven't paid any tax of any sort on it, there is nothing to add to your pension pot and nothing to record on your tax return.

Yes, should have said "reduces your gross" rather than go in from your gross.

Dazed_and_confused

The tax appears to come back to you either by way of a tax rebate or through an adjustment to your tax code (thus, presumably reducing the tax you pay the following year?).

No. HMRC do not alter the tax code of one year to allow pension tax relief for a different tax year.

If you complete a Self Assessment return any tax relief due will form part of the tax calculation for the year the return is for. HMRC may then assume that you will pay a similar pension contribution in the following year and adjust your tax accordingly but that is to allow provisional tax relief for the later year, not to allow relief from the tax return year.

Dazed_and_confused

Either way, the additional tax relief appears to come back to you as money in your pocket, rather than actually in your pension? Is this a correct interpretation?

Basically yes. Might be an actual refund or a reduction in tax you owe for other reasons but it is you who benefits, not the pension fund.

Dazed_and_confused

With salary sacrifice does the whole 40% relief go into the pension at the start (thus earning an extra year's growth)?

You don't get pension tax relief with salary sacrifice. You are giving up part of your salary, which usually means you pay less tax and National Insurance.

In return your employer contributes extra to a pension. Employer contribution do not attract personal tax relief.

You are saving tax and NI by having a lower salary, not by pension tax relief.