Higher rate tax relief, simple question

Workerdrone

Say I earn just over the 40% tax bracket. Lets say £52270 and the current threshold is £50270.

Imagine its not a sal sac setup. contribution just comes from net. If I pay £1000 into a work SIPP does it attract 20% tax relief or 40% tax relief.  My guess would be 40% as that's just a grand which I paid 40% tax on. 

Now what about £5k, most of that will have been taxed at 20%, and a little at 40%. so what rate tax relief do I receive on the whole £5k?

Dazed_and_C0nfused

Relief at source contributions only ever get basic rate tax relief.  For example you contribute £1,000 and the pension company adds 25% making a gross contribution of £1,250.

That is it as far as the pension is concerned.

However that £1,250 contribution increases your basic rate tax band by £1,250 meaning that, in your specific example, an extra £1,250 of your income will be taxed at 20% instead of 40%.  So a personal income tax saving of £250.

That £250 always comes back to you (or anyone you have authorised to receive your tax refunds), it is never added to your pension fund.  Although you could of course use it to make further contributions.

The personal tax savings is always given for the tax year the contribution was made in, either through an adjustment to your tax code or a refund (or reduced tax bill) after the tax year ends.

If you contributed £5,000 that would be a gross contribution of £6,250.  And your basic rate band would be increased by £6,250.  But if you only paid higher rate tax on £2,000 then the personal tax savings would only be £400 (£2,000 x 20% instead of 40%).

Dazed_and_C0nfused

In your example if you paid in £1000 after tax that is £1000/0.60 =£1666.66 gross. Basic rate tax and higher rate tax are both £333.33. You get £333.33 into your pension and £333.33 returned to you personally.

Could you clarify exactly how this would work as I'm not seeing it.

I'm assuming you are referring to a relief at source contribution but may be wrong there?

Linton

Dazed_and_C0nfused said:

In your example if you paid in £1000 after tax that is £1000/0.60 =£1666.66 gross. Basic rate tax and higher rate tax are both £333.33. You get £333.33 into your pension and £333.33 returned to you personally.

Could you clarify exactly how this would work as I'm not seeing it.

I'm assuming you are referring to a relief at source contribution but may be wrong there?

Yes you are right, I was confused. Now deleted.