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

user1168934

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?

xylophone

See https://www.taxassist.co.uk/resources/show-article/title/tax-relief-on-pension-contributions-for-higher-rate-taxpayers/id/125/

zagfles

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.

user1168934

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.