Pension Contribution / Income Tac calculation check

DadAlone

Hi, I'm hoping for one of the knowledgeable people on here to sense check my plan for the end of the tax year.

Late last year I hit the LTA so decided that I wouldn't be making any further pension contributions and resigned myself to losing all of my personal allowance. Recent events have caused me to take another look and so I have decided to make a lump sum contribution prior to the end of the tax year to minimise my Income Tax liability. Numbers as follows.

Expected Gross Income £138,107
Charitable Donations £300

Pension Contribution to date £15,835
Remaining gross AA £24,165
Net contribution to exhaust AA £19,331

So far this tax year I have paid £43,287 Income Tax and expect that to rise to £47,740 by the end of the tax year.

Listentotaxman suggests that if I make the net contribution to my pension of £19,331 (I have entered the gross of £24,165 in the pension box) , that my total Income Tax due for the year would be £35,674 meaning I would be due a refund of tax overpayment of £12,066 once I complete self assessment.

My main question around this is whether I have been correct to put the gross contribution amount in the Listentotaxman calculator or should I have used the net? Also, have I correctly worked out the net contribution required to exhaust the AA?

Any comments / corrections would be much appreciated.

Dazed_and_C0nfused

Is the £138k the pay that will be shown on your P60 or is it a combination of different types of income?

Is the £300 net of tax relief or gross including basic rate tax relief?

What method was used to contribute the £15,835?  Net pay, relief at source or salary sacrifice?

Are any employer contributions included in the £15,835?

Would the additional contribution definitely be a relief at source contribution?

DadAlone

Hi and thanks for your response.

The £138K is £131,702 gross salary and £6,405 Widowed Parent Allowance. I do not have any other form of income apart from around £25 in bank interest.

The £15,835 pension contributions are £13,953 employer contribution and £1,882 salary sacrifice. The £300 is gross charitable donations where I have ticked the gift aid box.

I am trying to work out the max additional contribution I can make which will be made from my existing savings into a Vanguard SIPP that I already hold.

Thanks for your help.

Somebody

DadAlone said:

The £15,835 pension contributions are £13,953 employer contribution and £1,882 salary sacrifice.

This does not make sense to me.  Salary sacrifice is what you give up in exchange for the employer's contribution; so the gross contribution into the DC scheme is £13,953?  What does your DC account say re contributions received? 

DadAlone

Hi thanks for your reply.

So my workplace pension is with Fidelity and 21/22 tax year contributions to date are as per follows.


Look forward to your thoughts.

DadAlone

Sorry, I haven't sized that screenshot well enough to read!

Fidelity website says Company Contributions £13,953.73 and Salary Sacrifice £1,881.80 making a total of £15,835.53.

I believe these contributions would all have attracted Relief at source which is why I believe I have £24,164.47 of gross annual allowance left and therefore I believe I can make a net payment into my Vanguard SIPP of £19,331 to ensure I use the full Annual Allowance in an effort to minimise my Income Tax liability?

Hopefully this makes sense now?

Grumpy_chap

£40k is the annual contribution allowance.  You may be able to exceed that if you have any unused contribution allowance from previous 3 years.

Dazed_and_C0nfused

DadAlone said:

Sorry, I haven't sized that screenshot well enough to read!

Fidelity website says Company Contributions £13,953.73 and Salary Sacrifice £1,881.80 making a total of £15,835.53.

I believe these contributions would all have attracted Relief at source which is why I believe I have £24,164.47 of gross annual allowance left and therefore I believe I can make a net payment into my Vanguard SIPP of £19,331 to ensure I use the full Annual Allowance in an effort to minimise my Income Tax liability?

Hopefully this makes sense now?

I suspect it's just terminology but they definitely aren't relief at source contributions.

Relief at source is where the pension company, courtesy of HMRC, adds basic rate tax relief to your contribution i.e. you pay in £1,000 and £250 in tax relief is added giving you a pension fund of £1,250.

There is no pension tax relief with employer contributions and salary sacrifice are employer contributions (you are agreeing to a lower salary in return for your employer contributing more) so you have not received any pension relief on any of those contributions. 

But with salary sacrifice you have avoided paying tax or National Insurance on the amount sacrificed.

If you make a personal contribution to a SIPP or personal pension then that will be a relief at source contribution and you will get 25% added by the pension company (20% of the gross contribution).

There is some useful info here about contribution limits.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/annual-allowance/

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/interaction-of-tax-relief-and-annual-allowance/

DadAlone

Grumpy_chap said:

£40k is the annual contribution allowance.  You may be able to exceed that if you have any unused contribution allowance from previous 3 years.

Thanks, I do not have any unused allowance for previous years so I'm limited to the £40K for this year. I manage to confuse myself every year with working out how much I can put in after taking account of what has gone into my workplace pension.

DadAlone

Dazed_and_C0nfused said:

DadAlone said:

Sorry, I haven't sized that screenshot well enough to read!

Fidelity website says Company Contributions £13,953.73 and Salary Sacrifice £1,881.80 making a total of £15,835.53.

I believe these contributions would all have attracted Relief at source which is why I believe I have £24,164.47 of gross annual allowance left and therefore I believe I can make a net payment into my Vanguard SIPP of £19,331 to ensure I use the full Annual Allowance in an effort to minimise my Income Tax liability?

Hopefully this makes sense now?

I suspect it's just terminology but they definitely aren't relief at source contributions.

Relief at source is where the pension company, courtesy of HMRC, adds basic rate tax relief to your contribution i.e. you pay in £1,000 and £250 in tax relief is added giving you a pension fund of £1,250.

There is no pension tax relief with employer contributions and salary sacrifice are employer contributions (you are agreeing to a lower salary in return for your employer contributing more) so you have not received any pension relief on any of those contributions. 

But with salary sacrifice you have avoided paying tax or National Insurance on the amount sacrificed.

If you make a personal contribution to a SIPP or personal pension then that will be a relief at source contribution and you will get 25% added by the pension company (20% of the gross contribution).

There is some useful info here about contribution limits.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/annual-allowance/

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/interaction-of-tax-relief-and-annual-allowance/

Thanks, it's me getting the terminology wrong I have no doubt!

So, all tax issues are already taken care of with contributions to my workplace pension so I'm correct in believing I have a further  £19,331 available to contribute to my Vanguard SIPP on a net basis, equating to £24,164 gross?

DadAlone

So to update this I have now made a further net contribution of £19,331 to my Vanguard SIPP which will gross up to £24,163.75.

With respect to my Income Tax position I believe I had effectively double counted the 20% relief that will be added to my SIPP and so now believe the overpayment of Income Tax will amount to £6,033 once I complete Self Assessment.

Thanks for previous comments.