Confirmation needed for personal pension allowance calculation

twister_teddy

I'm trying to workout my personal pension total allowance for current tax year 2021-22.

The reason I ask this is due to my confusion whether higher rate tax rebate claimed through HMRC self assessment is NOT factored in when calculating the 40k tax allowance. 

Lets assume the figures below from previous tax years. 

*** Simple Hypothetical scenario ***

Salary throughout remains same for current and previous tax years = £100k (falling into higher rate tax bracket)

Employee Pension paid through PAYE in 2018-19 = £10,000

Employee Pension paid through PAYE in 2019-20 = £10,000

Employee Pension paid through PAYE in 2020-21 = £10,000

So for each of above tax year;

Amount of basic-rate tax relief added at source: £2,500

Amount of higher-rate tax relief claimed back through tax self assessment: £2,500

So remaining allowance for each above tax year would be;

40,000 - 10,000 - 2,500 = 27,500

So what that means that total Pension allowance carry over from previous tax years plus 2020-21 would be;

40,000 (current tax year) + 3x 27,500 (previous 3 tax years) = 122,500

So essentially the claimed higher rate tax rebate isn't counted against the 40k allowance figure, correct ?

ps : I understand if employer contributes anything that would have to be counted from the 40k allowance. 

Dazed_and_C0nfused

You never include higher rate tax relief in calculating either your pension contributions or the annual allowance.

If you paid £10,000 and £2,500 basic rate tax relief was added then the gross contribution is £12,500.  If that saves you £1 or £5,000 in personal income tax it's still a gross contribution of £12,500.

moedeeb

I am in a similar position and since the 20% rebate has not ended up in a pension it is not counted. you need to be aware that the maximum you can add to pension in 21/22 is income earned in this tax year only so if it is 100k then that is the max you can get tax relief against even if you have Annual Allowance carry over of more than that.

twister_teddy

moedeeb said:

I am in a similar position and since the 20% rebate has not ended up in a pension it is not counted. you need to be aware that the maximum you can add to pension in 21/22 is income earned in this tax year only so if it is 100k then that is the max you can get tax relief against even if you have Annual Allowance carry over of more than that.

Sure I understand, not planning to use all the remaining allowance in current tax year so that should be within the  income earned in this tax year.

Albermarle

Just for the benefit of other readers of the thread .

If your employer operates a net pay scheme or salary sacrifice for contributions , then higher rate tax relief automatically does go directly into the pension ( by the fact the contributions are not taxed in the first place ) so would count towards the annual allowance .

The OP is in a Relief at Source scheme, where contributions come from taxed income and the relief has to be added on /claimed back .

zagfles

twister_teddy said:

I'm trying to workout my personal pension total allowance for current tax year 2021-22.

The reason I ask this is due to my confusion whether higher rate tax rebate claimed through HMRC self assessment is NOT factored in when calculating the 40k tax allowance. 

Lets assume the figures below from previous tax years. 

*** Simple Hypothetical scenario ***

Salary throughout remains same for current and previous tax years = £100k (falling into higher rate tax bracket)

Employee Pension paid through PAYE in 2018-19 = £10,000

Employee Pension paid through PAYE in 2019-20 = £10,000

Employee Pension paid through PAYE in 2020-21 = £10,000

So for each of above tax year;

Amount of basic-rate tax relief added at source: £2,500

Amount of higher-rate tax relief claimed back through tax self assessment: £2,500

So remaining allowance for each above tax year would be;

40,000 - 10,000 - 2,500 = 27,500

So what that means that total Pension allowance carry over from previous tax years plus 2020-21 would be;

40,000 (current tax year) + 3x 27,500 (previous 3 tax years) = 122,500

So essentially the claimed higher rate tax rebate isn't counted against the 40k allowance figure, correct ?

ps : I understand if employer contributes anything that would have to be counted from the 40k allowance. 

What do you mean "if", employer contributions are compulsory. So they always need adding.

Otherwise, it looks right if the pension is RAS (relief at source), which most workplace schemes aren't. Most use sal sac or "net pay", ie where contributions are deducted before tax.

Also as mentioned you can only get tax relief on gross RAS contributions up to your taxable earnings (NO carry forwards for this, ignore employer conts).

Marcon

zagfles said:

t

ps : I understand if employer contributes anything that would have to be counted from the 40k allowance. 

What do you mean "if", employer contributions are compulsory. So they always need adding.

Only for eligible employees.

zagfles

Marcon said:

zagfles said:

t

ps : I understand if employer contributes anything that would have to be counted from the 40k allowance. 

What do you mean "if", employer contributions are compulsory. So they always need adding.

Only for eligible employees.

What employees aren't "eligible"? And is any employer really going to set up payroll pension deductions for non "eligible" employees?

twister_teddy

Albermarle said:

Just for the benefit of other readers of the thread .

If your employer operates a net pay scheme or salary sacrifice for contributions , then higher rate tax relief automatically does go directly into the pension ( by the fact the contributions are not taxed in the first place ) so would count towards the annual allowance .

The OP is in a Relief at Source scheme, where contributions come from taxed income and the relief has to be added on /claimed back .

Absolutely correct, the scenario above is only discussing Relief at Source scheme. 

hugheskevi

zagfles said:

Marcon said:

zagfles said:

t

ps : I understand if employer contributes anything that would have to be counted from the 40k allowance. 

What do you mean "if", employer contributions are compulsory. So they always need adding.

Only for eligible employees.

What employees aren't "eligible"? And is any employer really going to set up payroll pension deductions for non "eligible" employees?

Main non-eligible categories of employee would include:

• Aged 21 or under
  
• Aged 66 or over
  
• Earn under than £10,000 a year
• Joined employer within last 3 months (postponement)

That is a pretty decent chunk of the workforce. Although many of them would be able to ask to join the scheme and be eligible for an employer contribution.

zagfles

hugheskevi said:

zagfles said:

Marcon said:

zagfles said:

t

ps : I understand if employer contributes anything that would have to be counted from the 40k allowance. 

What do you mean "if", employer contributions are compulsory. So they always need adding.

Only for eligible employees.

What employees aren't "eligible"? And is any employer really going to set up payroll pension deductions for non "eligible" employees?

Main non-eligible categories of employee would include:

• Aged 21 or under
  
• Aged 66 or over
  
• Earn under than £10,000 a year
• Joined employer within last 3 months (postponement)

That is a pretty decent chunk of the workforce. Although many of them would be able to ask to join the scheme and be eligible for an employer contribution.

Do employers usually allow non-eligible employees make personal contributions to the workplace scheme without employer contributions?