Lump sum Pensions

Simplicity77

After a payoff, I put a lump sum into a pension to get tax relief at 20%. I can apparently get an extra 25% for any income tax I paid over £45k. I got £100k Gross and wonder if I can claim the Higher rate tax relief on the £55k if I put that into a pension? 

Linton

Yes, if you contribute from taxed income  you do get higher rate relief paid to you rather than your pension.  You have to claim it from HMRC.

Simplicity77

So I got carried forward allowance ( last three years) and current allowance totalling £90K so can I claim 20% and an additional 25% on the £90K via HMRC self assessment. I am guessing I am only I allowed to claim the additional tax relief on just this current year since I pay Higher rate this year but have to wait until Apr23 to claim and is it restricted to just the £40k?

Linton

Reading your previous post....

I hope you are aware that personal contributions to a pension are limited to your "earnings" in a tax year.  For redundancy payouts the first £30K is tax free but is not regarded as earnings.  The remainder is.

Other payouts may not be regarded as earnings, so if there is any doubt you should check.  See https://www.rossmartin.co.uk/private-client-a-estate-planning/income-losses-claims-reliefs/1034-relevant-earnings-for-pensions-purposes for a partial list and a reference to HMRC.

Dazed_and_C0nfused

There is no "additional 25%".

The higher rate tax relief is wholly dependent on your overall tax position in the tax year you make the contribution in.

So for starters roughly how much is your taxable income going to be in the current tax year, is that £100k?

What does the £45k figure represent and where are you resident for tax purposes?

Albermarle

In your previous post you said you understood all the issues involved?
Also that your payoff was £50K, but now you mention £100K?

Linton

Simplicity77 said:

So I got carried forward allowance ( last three years) and current allowance totalling £90K so can I claim 20% and an additional 25% on the £90K via HMRC self assessment. I am guessing I am only I allowed to claim the additional tax relief on just this current year since I pay Higher rate this year but have to wait until Apr23 to claim and is it restricted to just the £40k?

Just to check you are aware , some points....
- Carry forward allowance only applies to the £40K allowance limit.  The earnings limit is totally separate.  You need to satisfy both.
 - if you do have £90K of carried forward £40K allowance and sufficient "earnings" to justify the pension contribution then you actually pay 0.8 X £90K =£72K into your pension.  The missing £18K is paid directly into your pension by HMRC to cover the basic rate tax.
 - the higher rate rebate applies to all money you contributed to a pension that is liable for tax at higher rate.  The £40K allowance is irrelevent unless of course you exceed it..  At the end of the tax year HMRC will effectively reduce your taxable earnings by your total pension contribution to determine how much higher rate tax rebate is appropriate.

Perhaps you can provide more details of what payments you received if you would like further discussion on how they can work with pension contributions.

xylophone

Also that your payoff was £50K, but now you mention £100K?

I have just looked at an earlier thread.

https://forums.moneysavingexpert.com/categories/redundancy-redundancy-planning

The OP entitled it PHI Termination payment to end employment.

I've been offered a 5 figure lump sum settlement over £30k and I understand this will be taxable over £30k. This is without consultation with my employer who will process the payment. Can I still ask for redundancy on top of the insurance settlement??

The offer is a lot but they have said payment is to mitigate their costs and not for the purpose of my disability so I guess will be taxed so will put into a pension. I'm not sure how to negotiate this amount to get it close to £100k in case they decide to withdraw it. I'm racking my brains over what to do..

I then had a look here

https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/what-you-pay-tax-and-national-insurance-on

You will not pay tax and National Insurance on:

• contributions your employer makes to a registered pension scheme as part of your termination payment - you’ll pay tax on any employer contributions that go above the Annual Allowance
• legal costs related to the settlement that your employer pays directly to your solicitor
• a termination payment you get because of an injury, illness or disability that prevents you from being able to continue to do your job

Is the payment the OP has received PHI or redundancy or both?

And how much of it counts as "relevant earnings"?

Simplicity77

Dazed_and_C0nfused said:

There is no "additional 25%".

The higher rate tax relief is wholly dependent on your overall tax position in the tax year you make the contribution in.

So for starters roughly how much is your taxable income going to be in the current tax year, is that £100k?

What does the £45k figure represent and where are you resident for tax purposes?

Yes savings will top it

Dazed_and_C0nfused

Simplicity77 said:

Dazed_and_C0nfused said:

There is no "additional 25%".

The higher rate tax relief is wholly dependent on your overall tax position in the tax year you make the contribution in.

So for starters roughly how much is your taxable income going to be in the current tax year, is that £100k?

What does the £45k figure represent and where are you resident for tax purposes?

Yes savings will top it

Savings aren't taxable income.  Interest on (non ISA) savings is normally taxable income.

But I think you are a million miles from understanding what you are trying to do.

On a previous thread you said "I was on £28k" so we have nothing so far to suggest you are even a higher rate payer (unless maybe Scottish resident for tax purposes) never mind in a position to pay £100k into a pension all in one go. 

You may have the money but that doesn't mean you are eligible to contribute that much and get tax relief on it.

xylophone

I am not at all sure that you have grasped the concept of "relevant earnings".

Have a look at this.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

Could you state your salary for the current year?

Could you clarify the amount and nature of the settlement?

Having read the above, what are your total "relevant earnings" for the year?

How much has been contributed to your pension (s) this year?