Clarification on Pension Contributions

Johnny_o123

I'm confused on whether tax relief counts towards the £40k pension threshold and on how this is calculated.

I will be making a £10.4k contribution via salary sacrifice throughout the current tax year and my employer will make a contribution of £18.2k. I have also made a contribution to a SIPP of £5k net, (or £6.25k gross of basic rate tax relief). Am I still within the £40k contribution cap? For the SIPP contribution, is it the £6.25k contribution which counts i.e. grossed up only at basic rate? For the salary sacrifice and employer contributions, do I need to gross those up as well and at what rate if I am an Additional Rate tax payer?

Also, I saw some reference to taking into account the increase in past DB scheme values. Does that apply to schemes with ex employers and does that mean that I need to apply indexation to the value of those schemes?

Thanks in advance for thoughts on this.

Marcon

The maximum contribution of £40K to a DC arrangement includes personal contributions + tax relief at basic rate; plus any employer contributions (which are paid gross, so no tax considerations for you to take into account - that applies to salary sacrifice arrangements too, because the contribution is made by the employer). 

You can disregard any higher rate tax relief (because it isn't paid into/credited to your pension 'pot') and any increase in previous DB scheme values.

The contributions you've outlined of £10.4K + £18.2K + £6.25K = £34.85K, so all is well!

Dazed_and_C0nfused

I will be making a £10.4k contribution via salary sacrifice throughout the current tax year

You won't be.

You will be giving up some salary in return for your employer contributing £10.4k into your pension.

That is why there is no pension tax relief with salary sacrifice, they are employer contributions.

The tax relief (and possible NI saving) comes from having lower taxable pay.

Johnny_o123

Thanks both for your helpful replies.

zagfles

If you're "additional rate" taxpayer you might be subject to the tapered annual allowance