Personal pension tax relief - Past years

236dave

Hi, hope some kind person can help!
I want to check that I have been getting the correct amount of pension tax relief over recent years.
I have been paying lump sums into my pension for several years now. I live in England and I am a 40% tax payer.

This morning I rang the tax office to query my pension tax relief for 2020-21 tax year, as my latest tax coding seemed low.
The conversation alarmed me, as they had got my allowance wrong, and now has me wondering if previous years have also been wrong?

I can see that basic rate tax relief is added to my net pension payment, and that an allowance is built into my following tax year PAYE coding to reimburse the extra tax paid at 40% rate.
It is this 40% tax relief that I want to check on. (the additional 20% above basic rate tax)

First of all see figures below, have I calculated the ''Tax relief for following tax year PAYE coding''....the last column correctly?
My formula is for example 2020-21:
11309 x 0.2 (additional 20%) = 2262 / 0.4 = £5654.50 (pension tax relief amount for tax year 2021-22)

How can I check if I have been given the correct pension tax relief (the additional 20%) for previous years, ie the part that is built into the PAYE coding ??

Dave

Tax Year Taxable Income incl. benefits in kind 40% tax paid on earnings above Max amount that can be reclaimed at 40% rate Gross Pension Payment Tax relief for following tax year PAYE coding 2020-21 61309 50000 11309 11437 5654.5 2019-20 62640 50000 12640 13125 6320 2018-19 67221 46350 20871 22250 10435.5 2017-18 63172 45000 18172 18200 9086

Dazed_and_C0nfused

I can see that basic rate tax relief is added to my net pension payment, and that an allowance is built into my following tax year PAYE coding to reimburse the extra tax paid at 40% rate.

Unfortunately you have misunderstood a basic concept of higher rate tax relief.

HMRC never allow pension tax relief for one tax year via the tax code for a different tax year.

For example any relief due for 2020:21 will be included (provisionally) in your 2020:21 tax code and, if necessary, any post end of tax year calculation to finalise matters.

Have you ever received any P800 or PA302 tax calculations from HMRC for any of the tax years 2017:18 through to 2020:21?

Also, what exactly does your end column actually refer to?  You have referred to this as tax relief but the tax relief on £11,437 is only ever going to be £5,654 for someone completing Self Assessment returns.

236dave

Thanks for the reply.
I have never received a P800 or PA302 for those years.
I do complete self assessment tax returns each year.
The last column refers to my personal pension relief.
Here is a screenshot from a recent tax notification:

Dazed_and_C0nfused

So any tax relief due for previous years has long since been finalised via your Self Assessment returns.  You don't get a P800 or PA302 for years you complete Self Assessment returns for.

If you check your Self Assessment tax calculations you will see that your basic rate band has been increased by the gross amount of whatever relief at source contributions you declared on each return.

Your 2021:22 tax code is allowing relief provisionally for 2021:22 and HMRC will estimate that based on your expected earnings and latest pension contribution details they hold, likely from your 2020:21 Self Assessment return.

The £3,631 isn't tax relief, it is a tax code allowance to allow relief, probably worth £1,452 if your taxable earnings are still expected to be £60k+

236dave

Thanks again for replying.
Here is a screenshot from H&L Pension tax relief calculator, it shows in green the additional amount that I can claim, via PAYE.
This would translate to a higher amount than the £3631 they had given in my tax code notification.  I assume the £3631 was an estimate from the tax office.

Dazed_and_C0nfused

The bit in green is just an estimate.

To keep your tax code as accurate as possible you should contact HMRC and provide an upto date estimate of your pension contributions for 2021:22 and make sure HMRC's estimate of what your taxable pay (the amount you expect to see on your P60) for 2021:22 will be is correct.

The tax code allowance may then be c£5,500 rather than £3,631.

236dave

Hi, thanks again for your response.
Due to the nature of my job, which includes commissions and bonuses, it's difficult to estimate my future earnings.
I have to wait till near the end of the tax year (Feb / Mar) time before I can accurately get a gross taxable amount for that year.
I then calculate a pension contribution that will be sufficient to reimburse any 40% tax payments that I have made.

What is confusing me, is that the higher tax rate part is reimbursed through PAYE the following tax year.
eg, 2020-21 pension contribution, has higher rate relief applied to 2021-22 PAYE coding.
And the amount of higher rate relief seems to be calculated on 2021-22 taxable income (estimated).

Shouldn't the higher rate tax relief be based on the taxable earnings of the same year the pension payment was made?
ie, I make a gross pension contribution of £11437 in 2020-21, and have the higher rate relief based on 2020-21 gross taxable income of £61309.

Otherwise, in my circumstance, when my income falls the following year I will be out of pocket!
eg,
2018-19 taxable income = £67221.....Pension payment = £22250
2019-20 taxable income = £62640...... If the higher rate relief is based on this then I am missing £5k worth of relief.
Hope you can clarify.
Thanks
Dave

Dazed_and_C0nfused

What is confusing me, is that the higher tax rate part is reimbursed through PAYE the following tax year.
eg, 2020-21 pension contribution, has higher rate relief applied to 2021-22 PAYE coding.

No it isn't.

HMRC never give pension tax relief in the way you describe.  Your 2021:22 tax code is simply giving provisional relief for 2021:22.

Until you can understand that principle you will never get to grips with this.

It may be your 2021:22 tax code is based on contributions made in a previous tax year, as that is the latest information HMRC hold, but it is not allowing tax relief for 2020:21.

If you review your 2020:21 Self Assessment calculation you will see the tax relief due is given there, by increasing your basic rate tax band.

Your 2021:22 tax code will only ever be as accurate as the information HMRC hold.  So you need to best estimate your 2021:22 taxable earnings and pension contributions if you want a revised tax code.

Personally I would say you are interfering unnecessarily as any tax relief due will only ever be final once your 2021:22 Self Assessment return is filed, anything between now and then is just provisional and won't alter the fact that it is your Self Assessment return that finalises things.

But if you are in desperate need of an updated tax code then you just need to keep HMRC informed as explained above.