Tax Relief on Pension Payment

Stones

Hi,
I currently have £50K sitting in a Cash ISA (earning 1.35%) and as I don't really need access to all of it, I thought it would be sensible to add £25K to my company pension (DC scheme).

I spoke with my pension company who said as my payments are received from my employer via salary sacrifice, it is not set up to include the tax relief automatically (additional £5k), and that I will have to claim it back myself by self assessment.

I did call HMRC, which was painful to say the least, and was left more than a little confused (they clearly didn't have a clue what I was talking about).

I do file a self assessment for some rental income I receive, but have not completed 2018/19 yet.

If I make the payment, does this mean I will have to wait until after April next year, and include it in 2019/20 self assessment?

Will I get £5K to put in my pension (which is what I want), or will they just adjust my tax code and offset it against the tax on my rental income?

Or is there a more obvious way of doing this I am missing?

Any help appreciated.

Thanks.

BoGoF

You would have to claim it in your 19/20 Tax Return and would reduce your tax liabilty accordingly or create an overpayment of tax. It will not go into your pension scheme.

Only way to get the tax relief added would be to open a seperate personal pension/SIPP.

Stones

Ok, thanks for that, as I suspected. Nothing is ever simple with the government is it.......

If there any reason why I can't just open another personal pension with £25K, which will then become £30K with tax relief added immediately, and then just transfer it all to my company scheme? (I have already transferred a couple of old pensions to it recently, and prefer having it all in one place).

Or would that be stupid?

xylophone

https://www.standardlife.co.uk/c1/guides-and-calculators/managing-your-pension-annual-allowance.page

If you pay £25000 net into a personal pension this equates to a gross contribution of £31,250.

FatherAbraham

Stones wrote: »

Hi,
I currently have £50K sitting in a Cash ISA (earning 1.35%) and as I don't really need access to all of it, I thought it would be sensible to add £25K to my company pension (DC scheme).

I spoke with my pension company who said as my payments are received from my employer via salary sacrifice, it is not set up to include the tax relief automatically (additional £5k), and that I will have to claim it back myself by self assessment.

I did call HMRC, which was painful to say the least, and was left more than a little confused (they clearly didn't have a clue what I was talking about).

I do file a self assessment for some rental income I receive, but have not completed 2018/19 yet.

If I make the payment, does this mean I will have to wait until after April next year, and include it in 2019/20 self assessment?

Will I get £5K to put in my pension (which is what I want), or will they just adjust my tax code and offset it against the tax on my rental income?

Or is there a more obvious way of doing this I am missing?

Any help appreciated.

Thanks.

There is a less obvious, and more beneficial, way of doing it.

Since your employer uses salary sacrifice, your pension contributions are avoiding National Insurance.

You should therefore consider increasing your pension contributions from salary, whilst consuming your ISA savings to compensate for the reduction in take-home pay.

This way, you will immediately receive all tax relief, as well as not having to pay National Insurance contributions on your pension savings.

You may not use salary sacrifice to reduce your gross salary below the National Minimum Wage.

Stones

I have just increased my salary sacrifice to 40%, and didn't really want to go higher at present (although I may in future).

The other option is transfer it to my SS Isa (Vanguard 60/40), although obviously without the tax relief.

Guess I will have to do some thinking.......

ColdIron

FatherAbraham's suggestion is a good one, I'd reconsider. What is the reason you don't want to increase your salary sacrifice contribution?

Dazed_and_confused

Given the fairly significant salary sacrifice already in place will you actually have sufficient earned income to be able to contribute £31,250 to a pension in the current tax year?

Stones

Salary is £42500 + bonus (unknown), so with 40% SS (plus a miserly 4% from the company) that equates to £18700 - looks like it was a good job I checked on here first as that rules out adding an extra £25K with tax relief I guess. (although I could add a lower amount).

My thinking was that although it is nice having £50k in cash for security, it is just eroding with inflation, and my pension does need some serious topping up. And I've just paid off my mortgage.

Will look again at the salary sacrifice side of things as a solution.

crv1963

Father Abraham suggestion is probably best as ColdIron says. Salary Sacrifice down to the minimum wage level, use the ISA to top up the shortfall in income until the ISA is either exhausted or you feel you have dropped it to a level that you don't want to go under.