higher rate taxpayer

dd95

hi all

how does becoming a higher rate tax payer effect pension contributions? i read somewhere that you have to complete tax return or something to get the 40% relief?

very confused here!

Marcon

If you are contributing to a pension scheme where the pension contribution is taken before tax is deducted (i.e. it decreases your taxable pay), you'll get full tax relief automatically.

If you contribute out of net pay (known as a 'relief at source' scheme), the pension provider claims basic rate tax relief on your behalf and adds this to your pension 'pot'. You can claim any higher rate tax relief due from HMRC by means of a self-assessment tax return. You can only claim higher rate relief on your pension contributions to the extent you've actually paid the higher rate (e.g. if you make a pension contribution of £100 but only £10 of your income was subject to 40% tax, you'll only get higher rate relief on £10 of your pension contribution).

If you don't fill in a tax return, you can simply contact HMRC. See https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

If your employer operates a salary sacrifice scheme, you don't need to worry - the employer makes contributions gross on your behalf.

Dazed_and_confused

It might have no impact at all.

A lot depends on exactly what basis you are making the contributions.

There may be no extra tax relief to claim.

What type are you making?

Without knowing that it’s impossible to know if a Self Assessment return is necessary. But it’s unlikely to be needed just for pension contributions.

dd95

how do i find this out?

in my 'deductions' section of my payslip it states PAYE tax, NI and Pension

sorry if i sound stupid but this sort of thing confuses me

Dazed_and_confused

Post all the details from one payslip (including the National insurance details) and we should be able to tell.

Marcon

Do you know the full name of your pension scheme - that might tell us. Or perhaps look at your scheme booklet/employee handbook?

SonOf

how do i find this out?

ask your pension administrator at the employer. Or look at your pension scheme booklet (if one) or the welcome pack about the pension you have been enrolled into.

Deneb

Marcon wrote: »

You can claim any higher rate tax relief due from HMRC by means of a self-assessment tax return.

If you already have to submit one for other reasons, otherwise in my experience it's easier to just phone them. When I did that, I just told them that I intended making sufficient contributions to a pension each year going forward, to negate my higher rate tax liability. They immediately adjusted my tax code and did it each subsequent year automatically until I told them I had retired and gave them estimates of my new income.

A few years ago, my wife wrote to HMRC regarding a somewhat complicated issue involving multiple income sources and submitted an SA tax return as, although she wasn't required to submit one, she wrote that it seemed to be the most straightforward way of providing the necessary information.

She received a rather blunt response stating that in future she should not submit a return under any circumstances unless she met the exact criteria set out on the HMRC website that would require her to register for self-assessment.

They did act on the figures though!

MaxiRobriguez

dd95 wrote: »

hi all

how does becoming a higher rate tax payer effect pension contributions? !

It means you get to dodge even more tax than before. It's a wonderful feeling.

dd95

so have just checked my booklet and it seems that royal london operate a relief at source pension which is annoying - does that mean anyone on higher rate must get in touch with HMRC once a year to get relief or will HMRC contact you

Albermarle

does that mean anyone on higher rate must get in touch with HMRC once a year to get relief or will HMRC contact you

Probably best to contact them to be on the safe side.
After they have sorted out a rebate cheque for you ( so not that annoying ) they will adjust your tax code on the assumption you will make similar pension contributions going forward.
So next tax year you will pay less tax each month rather than get a rebate .