S&S ISA questions and sense check

Albermarle

Essentially creating more money than I was ever paid (gross)

No because at the time you will have been paying higher rate tax on your salary .
You can not claim back more higher rate tax than you actually pay in a tax year .

So for example if you were earning £65K ( means £15K subject to 40 % tax ) and you contributed £5K a year directly to your pension from your salary .
Then if you made a separate £10K payment from your savings into the pension .you would get higher rate relief on that as well. If you added more than £10K , the additional amount would only get basic rate relief.

Alternatively you could just pay £15K direct from your salary and supplement your income from your savings .

It's a way of maximising the 40% tax relief at the time you are paying it .

bowlhead99

Albermarle wrote: »

No because at the time you will have been paying higher rate tax on your salary .
You can not claim back more higher rate tax than you actually pay in a tax year .

So for example if you were earning £65K ( means £15K subject to 40 % tax ) and you contributed £5K a year directly to your pension from your salary .
Then if you made a separate £10K payment from your savings into the pension .you would get higher rate relief on that as well. If you added more than £10K , the additional amount would only get basic rate relief.

Alternatively you could just pay £15K direct from your salary and supplement your income from your savings .

It's a way of maximising the 40% tax relief at the time you are paying it .

Just to note for clarity that the '£10k payment' in this example is the gross amount that ends up in the pension - which if it hadn't gone into the pension would have left you with £4k of income tax bill. So the true 'net cost' of doing it would have been £6k net of the basic and higher rate tax reliefs.

In practice, if you contribute from your bank account (money which you might have withdrawn from savings or S&S investments), you only need to put £8k of cash in from your bank account, and the provider grosses it up to £10k inside the pension pot for basic rate tax. Then after you do your tax return or letter to HMRC, HMRC gives you a refund for the other £2k to ensure that it's only cost you £6k net.