Tax relief on one-off payment to USS Investment Builder

Umiamz

I've just contributed a large one-off sum to my USS Investment Builder via my employer and they are paying the tax relief via my salary. So far, they've refunded all tax that I've paid so far this year and have said I won't pay tax for the rest of the tax year. However, it will still fall short of the theoretical amount of tax relief that I could be due.

I have a small private pension that I'm already receiving and paying 20% tax on. Am I entitled to claim the tax back on this as well (it will still be less than I could theoretically receive). Would HMRC do this automatically or would I have to claim it at the end of the tax year?

Thanks for any advice...

Dazed_and_C0nfused

Do you mean they have treated this as a "net pay" contribution?

If so what do you expect your 2020:21 P60 from your employer to show your taxable pay as?

And roughly how much will your private pension P60 for 2020:21 show your taxable pension as?

Each method of pension contribution works in different ways so you can get vastly different amounts of tax relief from making the same basic contribution.

Umiamz

Well, the amount I have contributed is shown on my pay slip twice - once as "DC AVC lump sum" and again as "Net pay adjustment" (to cancel it out).

If I look on the HMRC website it now shows me (for my salary) as having paid no tax this tax year and my income received to date as being roughly equivalent to one month's salary.

For my small private pension it shows my taxable income and income tax paid so far this year without any other adjustments.

Dazed_and_C0nfused

Your pension contribution isn't important.  You cannot get pension tax relief against pension income but there are ways around that in very specific circumstances and you might be in the fortunate position of being able to benefit.

You don't have to provide the exact figures to the penny but if you want to understand the possible impacts (benefits) then you really need to give details of what you expect your 2020:21 P60's will show.  From both your job and your pension.

Umiamz

I'm expecting my pension P60 to show around £1600 gross and the tax to be 20% of this. I honestly don't know what my salary P60 will show and won't until at least next month's pay slip so that I can work out what they've done.

To complicate things slightly, I'm retiring at the end of March and will start receiving the USS pension.

Dazed_and_C0nfused

That is unlikely to complicate things though as won't your first USS pension payment be in the 2021:22 tax year?

Anyway if your P60 from the job shows under £10k (for simplicity) chances are you will be able to get the £320 back you have paid on the pension.

You could stop paying tax on it now and get back what you paid so far if you really wanted but until you understand what your P60 will show from your job it might be best left and it is for now.

And as far as your P60 goes won't it just be your latest payslip taxable pay plus taxable pay in January, February and March??

Umiamz

Yes, you're correct, first USS payment will be in the next tax year.

It looks like the taxable gross on my latest pay slip is the taxable gross to date less the lump sum AVC that I paid to USS. Adding 3 more months of my taxable pay to that will come to around £9000. My taxable income is low because I'm also paying a large monthly AVC via salary sacrifice.

Dazed_and_C0nfused

If you look at your Personal Tax Account you should be able to update your estimated pay at your employment (and pension if necessary albeit it's much less likely to be).

If your employment pay was £9,000 that would mean there are spare tax code allowances available which would then allocated to the pension resulting in some or all of the tax paid on the pension being refunded to you by the pension payer.

To ensure you don't overcomplicate things you should remember that the refund of tax paid on the pension is because you have spare Personal Allowance available, not because you are entitled to pension tax relief against the pension.

The other thing to consider next year is that as your lump sum pension contribution will make your taxable pay much less than would normally be the case it might impact your tax code(s) for 2021:22 and you may be best providing new estimates for that tax year in March 2021.

Umiamz

Thanks, yes, I updated my estimated income yesterday, based on the information on my payslips. I'll see what happens now and update it again in March, although I'll no longer be receiving the salary in April and should just be receiving the two pensions.

Dazed_and_C0nfused

Umiamz said:

Thanks, yes, I updated my estimated income yesterday, based on the information on my payslips. I'll see what happens now and update it again in March, although I'll no longer be receiving the salary in April and should just be receiving the two pensions.

Good point, I forgot that ☹️

OldBeanz

In a net pay arrangement you can only reclaim any tax that will be payable so you get no HMG contributions if this takes your total income below your tax allowance. That is why many part time and/or low paid local government staff receive no pension tax benefits.