Working from home - tax relief

7Phil

Scrounger said:

I get tax relief on my pension contributions for tax I don't pay.

https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/tax-relief-on-pension-contributions-explained-a27f53z7qg3f#headline_6

This is worth up to £2,514 per annum courtesy of the taxpayer!

So not as preposterous an idea as it may seem. 

Scrounger

 

I can understand why there is a bonus/incentive for paying into pension regardless of the individual's tax situation. It's still called "tax relief" but that's probably a slight misnomer even though it's based on the 20% income tax scale unless you pay a higher income tax rate.

Still, people do pay other types of tax including simply VAT. It's probably just seen as working out as general tax relief as to why it's allowed, plus there being an upper limit on what you can claim on, plus there being only certain ways to claim that tax relief (not via a workplace pension scheme etc).

The WFH tax relief is clearly income tax relief though and is claimed back through the PAYE tax code. That is, by increasing the individual's personal allowance by 6*52 weeks (£312 per annum).

The pension allowance "tax relief" sounds like a great little money-spinner. If the stars align perfectly for you to be able to take TFLS and pump it straight back into your pension for more "tax relief" then go for it!

Be careful to ensure you are within the limits though. HMRC may expect you to be sure by yourself whether that's the case and can ask you to repay the money if it isn't.

7Phil

So actually, @Scroungermaybe you can make it work this way:

1. Say your PA is 12500 and you earn exactly 12500. You contribute 100% to pension and get 20% tax relief added on top.
2. Claim the WFH allowance to increase your PA by 312 and then find a way to earn another 312 in same the tax year, which you also contribute to pension
3. You'll get additional tax relief into your pension of another 20% of the 312

Ta da

Scrounger

Sadly I'm unable to implement your suggestion as took VR last year due to covid. 

However, prior to this, for the last few years I was using the @jamesd method: salary sacrifice into work pension right down to minimum wage then gross pay (after sacrifice) into private pension.  This gives some NI relief and full tax relief - including £2500 extra free money due to tax relief 'recovered' on the (£12k5) tax-free PA.  Recommended. 

Scrounger