Do I include lump sum pension payment when working out income for working tax credit?

Bigbobby

I am currently part of the NHS pension scheme 2015.  I received PIP and get working tax credits (with severe disability premium).  I received an inheritance last year of £10,000 and paid this into a private pension last autumn with Legal and General, separate from my NHS pension.  When it comes to calculating my income for tax credit purposes each year I deduct my pension contributions from my gross pay.  This has been all well and good over the years and easy to calculate.  For this financial year though do I also deduct the Legal and General lump sum payment i made even though it was an inheritance and a separate pension from the NHS?

Dazed_and_C0nfused

I am currently part of the NHS pension scheme 2015.  

When it comes to calculating my income for tax credit purposes each year I deduct my pension contributions from my gross pay.  

May result in the same answer depending on what you class your "gross pay" as but it isn't in accordance with the guidance which specifically excludes occupational pension contributions.

Deductions
There may be deductions you can make when working out your income for tax credits. For example, the first £100 of weekly Statutory Maternity, Paternity, Shared Parental and Adoption Pay, the gross amount of some pension contributions (not including occupational pension payments), donations to charity by Gift Aid,and some allowable work expenses, fees and subscriptions.

As far as personal pension contributions are concerned this is from last year's renewal notes,

You can deduct the gross amount of any payments you have made in Gift Aid donations, personal pension or retirement annuity contributions.

SomeMadeUpName

I think yes you should include it as a deduction. Furthermore, as the £10k you paid in was the net and the pension fund should have added £2,500 in tax refund, the gross contribution you should declare would be £12,500. So your TC should go up a fair bit, as your declared income will drop a fair bit. Maybe use the extra TC income to send further payments to that personal pension, getting more tax returned and another deduction to use for the next TC declaration. Keep repeating in a slowly diminishing circle and your £10k inheritance could end up a significant little pension pot. 

One question: Was your earned income from the NHS in that year £12,500 or more?

Regards the point raised above about not deducting payments to an occ pension: I really have no idea on that bit.

& btw, check everything I say, as I am no expert.

SomeMadeUpName

Dazed_and_C0nfused said:

Deductions

There may be deductions you can make when working out your income for tax credits. For example, the first £100 of weekly Statutory Maternity, Paternity, Shared Parental and Adoption Pay, the gross amount of some pension contributions (not including occupational pension payments), donations to charity by Gift Aid,and some allowable work expenses, fees and subscriptions.

Where does that come from? I can't see anything like that when I Google. Plus I can't see the logic in occ pension contrib not being a deduction. I've no skin in this game, as I've never been in a occ pension (I wish) but just confused by it. 

Dazed_and_C0nfused

It is from the HMRC document TC603R.

It makes perfect sense and specifically prevents double counting.

In this example someone working for the NHS might be on a salary of say £25,000 and pay 10% into their NHS pension.  Their P60 will show taxable pay of £22,500.  So if you deduct the pension contributions you would be declaring net income of £20,000 when the correct figure (ignoring any personal pension contributions) is £22,500.  As shown on the P60.

SomeMadeUpName

Ah, ok, pension contrib into occ pension doesn't show on the P60. Is there then a difference between gross pay and taxable pay?
I've no experience of occ pensions. The only advice I was seeing on the Gov.uk was to deduct the gross of pension contrib unless it was 'paid from salary', which is very vague (and would to many appear to include workplace pensions). I looked at a payslip I generated for someone, it had hourly pay multiplying out to £1515, it then had a figure for gross pay as £1515 and 3no deductions for tax, NI and workplace pension. The workplace pension was £51 which would have been the post tax calc. I think what you are saying is that occ pensions are deducted before tax (ergo no HMRC boost once in the fund) and this would be reflected already in the P60 figure?
So in your example is the £25,000 figure no where on the P60, or are both the gross and taxable listed?

Xbigman

Are you sure about this? If you receive a 10k inheritance your capital has gone up 10k, not your income. If you put this 10k into a pension your capital has gone down, not your income. 
Am I wrong?

Darren

Croeso69

Xbigman said:

Are you sure about this? If you receive a 10k inheritance your capital has gone up 10k, not your income. If you put this 10k into a pension your capital has gone down, not your income. 
Am I wrong?

Darren

Capital irrelevant for tax credits. By paying in £10,000 into a pension he has effectively reduced his taxable income by £12,500 which would mean approximately £5,125 extra tax credits (41% of £12,500) being due to him.

Dazed_and_C0nfused

Croeso69 said:

Xbigman said:

Are you sure about this? If you receive a 10k inheritance your capital has gone up 10k, not your income. If you put this 10k into a pension your capital has gone down, not your income. 
Am I wrong?

Darren

Capital irrelevant for tax credits. By paying in £10,000 into a pension he has effectively reduced his taxable income by £12,500 which would mean approximately £5,125 extra tax credits (41% of £12,500) being due to him.

Just to avoid any confusion, the £12,500 will reduce income for tax credit purposes but it does not reduce taxable income for income tax purposes.