Buying additional pension with a lump sum in the Teachers Pension Scheme

chucknorris

I have bought additional pension is the TPS before, but that was by my paying directly from my salary each month, which meant that as my gross salary was reduced, so I avoided paying 40% tax. But if I pay by lump sum will I get the full 40% tax relief? I ask because previously when I paid into my SIPP, I obtained 20% relief from the pension provider when they topped up my contribution, then a I claimed further 20% relief with my tax return. But it appears (unless I am wrong) that when you pay by lump sum to the TPS you have to play the full amount (rather than only 80% as you would with a SIPP contribution). Am I missing something?
EDIT:
When I contributed into my SIPP I entered my pension contribution (gross) into a box on my tax return for provider claiming 20% tax return. But I note that there is also the option to enter the amount into a box for "Pay into an employer's scheme which will not deduct it from your pay before tax". Would this somehow facilitate 40% tax relief, say by extending your personal allowance rather than your 20% band?

jsinc

You have to claim the tax back from HMRC

https://forums.moneysavingexpert.com/discussion/5738860/teachers-pension-additional-pension

https://forums.moneysavingexpert.com/discussion/comment/76755582#Comment_76755582

Dazed_and_C0nfused

chucknorris said:

When I contributed into my SIPP I entered my pension contribution (gross) into a box on my tax return for provider claiming 20% tax return. But I note that there is also the option to enter the amount into a box for "Pay into an employer's scheme which will not deduct it from your pay before tax". Would this somehow facilitate 40% tax relief, say by extending your personal allowance rather than your 20% band?

Not necessarily, it depends on your overall tax position.

But your basic premise is correct, it works like extra Personal Allowance, there is no "pension" tax relief as such.

So if for example you earned £15k and paid £500 in tax and contributed £10k as a gross payment like you intend the maximum tax refund would be £500 (the tax you have paid).

If you contributed £10k to a SIPP or personal pension in that situation you would get no personal tax saving (your basic rate band would be increased but that doesn't save you any tax on £15k/year) but the pension company would add £2,500 basic rate tax relief to your pension fund giving you a fund of £12,500.

If you complete Self Assesment returns you can see the impacts by completing a return without the entry, check the bottom line of your calculation and then include the proposed gross contribution and see what difference it makes.  For some it will be 40/41%.  It could be 60+% in some situations.

atush

Are you going to retire early before you scheme age?  have you looked into a PP or Sipp instead to reduce your 40% tax?

chucknorris

Sorry but I do not think that you understood my question. But yes we were thinking about complete a dummy online tax return to find out, but I was hoping to speak to someone that had either done this, or happened to know. 

Dazed_and_C0nfused

chucknorris said:

Sorry but I do not think that you understood my question. But yes we were thinking about complete a dummy online tax return to find out, but I was hoping to speak to someone that had either done this, or happened to know. 

Lots of people have done it and received the tax relief via their Self Assessment return.

But the amount of tax relief you will receive depends on your overall tax position for the year.  There have been posters on here who assumed they would get 20% like a SIPP and were disappointed when they got nothing.

There is no fixed amount of tax relief with a gross contribution like you plan on making.  

chucknorris

You have not understood my question, I have done it myself for years, paying into my SIPP, where the pension provider claims an additional 20% for myself and adds it to my contribution, and I claim an additional 20% via my tax return. But my question is specific to being a higher rate tax payer paying into a defined benefit pension, and obtaining the full 40% tax relief! Despite the fact that the pension provider does not claim 20% on my behalf. I do expect that I nailed it in my second post, i.e. that the personal allowance is increased, rather than the 20% band.

chucknorris

atush said:

Are you going to retire early before you scheme age?  have you looked into a PP or Sipp instead to reduce your 40% tax?

In my opinion buying additional pension offers much more value than a SIPP. I know that is subjective, but that is my opinion.

Dazed_and_C0nfused

I have understood your question.

There is no fixed 20% (or 40%) with a gross contribution like this.

The contribution works in a similar way to the Personal Allowance so this is a higher rate example with just one source of income, who is not Scottish resident for tax purposes, to keep it simple.

Taxable earnings £54,000
Less gross pension contribution £10,000
and Personal Allowance £12,500
Income to be taxed £31,500 
£31,500 x 20% = £6,300

Position without the pension contribution
Taxable earnings £54,000
Less Personal Allowance £12,500
Income to be taxed £41,500
£37,500 x 20% = £7,500
£4,000 x 40% = £1,600
Total tax due £9,100

Pension contribution of £10,000 has saved you £2,800 tax.

chucknorris

Please stop posting you really do not understand, I don't know why you do not understand, but you obviously don't. This is all about the process of obtaining the full 40% tax relief, rather than 20% relief, when the pension provider does not claim an initial 20% on your behalf. Please stop posting here. As I said I think that I probably nailed it in the second post of this thread.

jsinc

Edit. Waste of time, good luck