Pension tax question - annual allowance, salary sacrifice and top up contributions

richiereynolds

Hi folks, bit of a mechanics of the tax system question.

Let's say I earn 90k, so, I should 40% tax relief of the full annual allowance of 40k, yes? (approximately, I know the higher rate band doesn't start exactly at 50k)

Let's say I put 20k into my pension via salary sacrifice, so I've already got 40% relief on that.

I then do a top of payment of 20k from my bank account. My pension provider adds the lower rate tax relief on top but I need to claim the higher rate relief on my self assessment.

When I come to fill in my self assessment, it's going to say my taxable income ways 70k (because of the salary sacrifice).

Is it then going to ask me what my total contributions were (40k), and say I'm only entitled to higer rate relief on 20k of that due to my salary being 70k and I've already had that relief? Or does it differentiate between the contributions that were paid via salary sacrifice and those I topped up from money I'd already paid tax on?

Or will it just adjust my tax code to give me the relief on the amount between 50k and my 70k taxable income and not care about the relief on the contributions that were via salary sacrifice?

I'm guessing it's the latter but just wnated to check. Thanks!

MX5huggy

On the SA you only put £20k of contributions. 

You didn’t make the £20k Salary Sacrifice contribution your employer did. 

Dazed_and_C0nfused

You have only paid £20k.

The other £20k were employer contributions so no pension tax relief is due and you cannot include them on your Self Assessment return.

You only get higher rate tax relief on the amount of tax paid at higher rate, you won't get higher rate on the full £20k just because you have paid some higher rate tax.

zagfles

richiereynolds said:

Hi folks, bit of a mechanics of the tax system question.

Let's say I earn 90k, so, I should 40% tax relief of the full annual allowance of 40k, yes? (approximately, I know the higher rate band doesn't start exactly at 50k)

Let's say I put 20k into my pension via salary sacrifice, so I've already got 40% relief on that.

I then do a top of payment of 20k from my bank account. My pension provider adds the lower rate tax relief on top but I need to claim the higher rate relief on my self assessment.

When I come to fill in my self assessment, it's going to say my taxable income ways 70k (because of the salary sacrifice).

Is it then going to ask me what my total contributions were (40k), and say I'm only entitled to higer rate relief on 20k of that due to my salary being 70k and I've already had that relief? Or does it differentiate between the contributions that were paid via salary sacrifice and those I topped up from money I'd already paid tax on?

Or will it just adjust my tax code to give me the relief on the amount between 50k and my 70k taxable income and not care about the relief on the contributions that were via salary sacrifice?

I'm guessing it's the latter but just wnated to check. Thanks!

If you do that then your gross contribution is £25k, so the total pension input will be £45k plus any employer conts above the sal sac. If you actually want to contribute £20k gross to a RAS scheme, you need to contribute £16k net.

But are you talking about making the extra £20k contribution to the workplace scheme, or a separate scheme like a SIPP? If it's the workplace scheme, why not just contribute the whole £40k by sal sac? Why complicate things? You also need to account for employer conts (besides the sal sac) in the annual allowance calculation.

If the workplace scheme isn't a RAS scheme, the answer is different. But you say the provider would add lower rate relief. If you'ree sure about than, then it is a RAS scheme.

Albermarle

As above you will be going over the Annual Allowance of £40K, when you take into account tax relief and presumes employer contributions .This might still be OK  if less than £40K was added to your pension(s) in the previous three years, as you can bring forward unused allowances. 

richiereynolds

MX5huggy said:

On the SA you only put £20k of contributions. 

You didn’t make the £20k Salary Sacrifice contribution your employer did. 

thanks, that's the piece of info I was after!