Colleague query on pension tax relief

Mick70

Evening all ,
colleague salary earnings are about 45k for 2019/20.  She also receives a DB pension of about 15k.  She has said this is taxed at 40%.

If she is paying , say 15k, into a DC pension can she claim additional (40% tax relief ) on those contributions ?    I wasn’t sure to be honest .
many thanks 
mick 

NottinghamKnight

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

Mick70

NottinghamKnight said:

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

Thank you I wasn’t certain if you could only claim additional tax relief solely on your salary earnings ,  in which case this wouldn’t qualify as is under 50k.   

I agree if add in her 15k DB pension then her TOTAL earnings become about 60k ,  so in this case 10k of pension contributions into the DC scheme should get extra tax relief 

Asghar

NottinghamKnight said:

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

The salaried earnings are within the 20% tax rate, so how would they be able to receive 40% tax relief on any pension contributions?

Dazed_and_C0nfused

She will be due some additional tax relief however unless she is Scottish resident for tax purposes paying 40% on the pension would be unusual.

But irrespective of that and assuming you mean £15k gross contribution then her basic rate band would be increased from £37,500 to £52,500.

If, as seems likely from your op, she has only paid higher rate tax on £10k of her overall income then she would get a personal tax reduction of £2k (£10,000 being taxed at 20% rather than 40%).

So she will have handed over £12k to the pension company and ended up with a fund of £15k with the ultimate cost, net of personal tax saving, being just £10k.

Dazed_and_C0nfused

Asghar said:

NottinghamKnight said:

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

The salaried earnings are within the 20% tax rate, so how would they be able to receive 40% tax relief on any pension contributions?

Easily in this scenario.  A bit like how a net pay contribution on the job would actually gain 40% relief despite that only being a basic rate source of income.

Mick70

Asghar said:

NottinghamKnight said:

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

The salaried earnings are within the 20% tax rate, so how would they be able to receive 40% tax relief on any pension contributions?

This is bit I’m still confused about .
salary earnings are just under that bracket but combined with DB pension it is about £10k above the bracket 

Dazed_and_C0nfused

Mick70 said:

Asghar said:

NottinghamKnight said:

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

The salaried earnings are within the 20% tax rate, so how would they be able to receive 40% tax relief on any pension contributions?

This is bit I’m still confused about .
salary earnings are just under that bracket but combined with DB pension it is about £10k above the bracket 

How do you think it should work then?

Mick70

Dazed_and_C0nfused said:

Mick70 said:

Asghar said:

NottinghamKnight said:

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

The salaried earnings are within the 20% tax rate, so how would they be able to receive 40% tax relief on any pension contributions?

This is bit I’m still confused about .
salary earnings are just under that bracket but combined with DB pension it is about £10k above the bracket 

How do you think it should work then?

I didn’t know , thought it was perhaps just based on your salary earnings only .  I will let her know she can claim the additional tax relief for some of her pension contributions 

NottinghamKnight

Mick70 said:

Asghar said:

NottinghamKnight said:

Well tax could be reclaimed so assuming no other complications then £10k would receive 40% tax relief and the remainder 20%; assuming this is a private pension (sipp etc) then the company will reclaim 20% automatically and the remainder can be reclaimed through self assessment or a simple letter if easier.

The salaried earnings are within the 20% tax rate, so how would they be able to receive 40% tax relief on any pension contributions?

This is bit I’m still confused about .
salary earnings are just under that bracket but combined with DB pension it is about £10k above the bracket 

The pension contributions would have to come out against salary, as pension income isn't a valid source for pension contributions. However tax is paid on total income, so rather than paying 40% tax on the income above the higher rate limit the pension relief is offset, meaning that 40% tax is 'saved'. Always best to work these things out in gross terms, and what actually happens depends on how payments to pension are made, it could be a change in tax code, or reclaim of excess tax which will be partially dependent on whether pension contributions are made through an employer scheme or personal pension/ sipp.