Pension tax relief clarification

JoeCrystal

I am just wondering on an issue highlighted by paganmanwales in the post about pension tax relief. I always thought that if you contribute up to your earnings, you will get tax relief on the entire contribution?

But from the sound of it in the discussion, you only get the tax relief you paid in the first place?

Let say I am on £27,500 salary and during the tax year, I paid £3,000 in income taxes. I know that you get 20% tax relief on the net contribution you paid into a pension scheme, so every £80 get £100. If I decided to contribute £12,000 to a pension scheme, then I will get £3,000 tax relief making £15,000 gross and getting my income tax back.

What if I decide to contribute full earning of £27,500 into a pension scheme by paying £22,000 net into a pension scheme, so it grossed up to £27,500 in a pension scheme (£5,500 tax relief) OR will it only get £3,000 tax relief since I only paid £3,000? Which one is right,

Just curious.

MallyGirl

given that you can get tax relief on £3600 without paying any tax, it can't be that you only get relief on the tax you paid

Albermarle

Also as I understand it , if you earned £10 K and paid no tax , you can still claim tax relief on £10K.
I guess it is a kind of concession for lower earners ( like the £3600 is for non earners ) as pension tax relief disproportionately benefits higher earners.

SonOf

I always thought that if you contribute up to your earnings, you will get tax relief on the entire contribution?

Depends on the pension scheme you use. There are some workplace schemes where you only get tax relief on the amount above your personal allowance. I think that other thread was one of those.

Individual schemes dont have this issue.

Brynsam

JoeCrystal wrote: »

What if I decide to contribute full earning of £27,500 into a pension scheme by paying £22,000 net into a pension scheme, so it grossed up to £27,500 in a pension scheme (£5,500 tax relief) OR will it only get £3,000 tax relief since I only paid £3,000? Which one is right,

If it's a relief at source scheme (where the provider claims basic rate tax on your behalf and adds it to your 'pot'), then you get basic rate relief even if you haven't paid tax in the first place. In your example, you'd get tax relief on the full £22,000.

paganmanwales appears to be in a 'net pay' scheme, where the pension contribution is deducted from salary before the salary is taxed. Different animal - and very confusing!

JoeCrystal

Thank you guys for your clarification. Something to bear in mind, should I got enough savings in the future.