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Does one off pension contribution from net pay make more sense in my case?

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I am considering making a one off lump sum contribution to my pensions in order to bring down the tax band. My current tax band is 40%.

I have been told that making a contribution via my employer is best because this will go from the gross pay and thus no tax will be deducted - nice and simple.

I have also been told that if I make a contribution on my own from my net pay then the pensions provider can claim 20% tax immediately and the remaining 20% I will have to claim myself by making a self assessment.

I am a fairly long way from retirement. I would prefer to have as much cash as possible accessible to me now rather than locked away in pensions, while not having to pay the higher rate tax. So I am thinking if I make the contribution from my net pay then any tax I reclaim at the end of the year will be in my pocket i.e. I can keep 20% of the lump sum in my pocket while not having to pay higher rate tax.

Does this make sense? Have I missed anything?
Is there any disadvantages of doing this?
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  • zagfles
    zagfles Posts: 21,402 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Chutzpah Haggler
    It makes no difference tax wise. Say the contribution is £1000 gross. It either comes off your gross pay, saving you £400 tax, so it costs you £600.

    Or you pay in £800 from your after-tax pay, the pension provider collect £200 RAS making it up to £1000 in the pension, and you claim back £200 from HMRC.

    Same end result. Except you are £200 out of pocket temporarily with the latter.

    Also if your employer offers salary sacrifice, you could save a bit of NI.
  • zagfles wrote: »
    It makes no difference tax wise. Say the contribution is £1000 gross. It either comes off your gross pay, saving you £400 tax, so it costs you £600.

    Or you pay in £800 from your after-tax pay, the pension provider collect £200 RAS making it up to £1000 in the pension, and you claim back £200 from HMRC.

    Same end result. Except you are £200 out of pocket temporarily with the latter.

    Also if your employer offers salary sacrifice, you could save a bit of NI.


    Oh ok, I thought I would be paying £600 and claiming another £200 from HMRC. You are right, in this case it makes more sense to do it via employer. Thanks.
    Marriage is hard. Divorce is hard. Choose your hard.
    Obesity is hard. Being fit is hard. Choose your hard.
    Being in debt is hard. Being financially disciplined is hard. Choose your hard.
    Communication is hard. Not communicating is hard. Choose your hard.
    Life will never be easy. It will always be hard. But you can choose your hard.
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