19% income tax and pension contributions

Xbigman

Does the Chancellors announcement today mean that the tax benefits of pensions are devalued next year? IE Instead of putting 2880 into my SIPP and gaining 720 I need to put in a bit more for a bit less? 


Darren

Notepad_Phil

Xbigman said:

Does the Chancellors announcement today mean that the tax benefits of pensions are devalued next year? IE Instead of putting 2880 into my SIPP and gaining 720 I need to put in a bit more for a bit less? 


Darren

That indeed will be the case (for the putting in a bit more than £2880). But you'll also pay less tax when you draw money out - assuming you're drawing down more than your personal allowance and hence have to pay tax on that portion.

Dazed_and_C0nfused

Xbigman said:

Does the Chancellors announcement today mean that the tax benefits of pensions are devalued next year? IE Instead of putting 2880 into my SIPP and gaining 720 I need to put in a bit more for a bit less? 


Darren

Nope.  You are likely to need to put in a bit more to get the same out (for a RAS scheme)..  

For instance if you currently contribute £125 that is £100 from you plus £25 in basic rate tax relief.

To get £125 next tax year I would expect you would need to pay in £101.25 and £23.75 will be added in basic rate tax relief.  Giving a gross contribution of £125.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044220#relevant

dunstonh

Does the Chancellors announcement today mean that the tax benefits of pensions are devalued next year? IE Instead of putting 2880 into my SIPP and gaining 720 I need to put in a bit more for a bit less? 

You never put £2880 into your SIPP.   You put £3600 into it and received basic rate relief.   For that tax year, basic rate relief was £720. 

Relief is not a bonus or something you add on.  It is a reduction.

So, next year, you will still put £3600 into the pension but the relief will be £684 rather than £720.

JoeCrystal

Here is what The Growth Plan document have to say on this matter:

"There will also be one-year transitional period for Relief at Source (RAS) pension schemes to permit them to continue to claim tax relief at 20%."

So my understanding is that at least for the tax year (23-24), the people who contribute into relief at source schemes get people get 20% tax relief anyway.

MX5huggy

While I’m sure that is technically true. You send £2880 to your SIPP then £720 is added to it. 

If you do this tax year, then take it out next tax year paying 19% tax. 

You get £900 tax free and pay £513 on £2700 in tax  getting out £3087 an benefit of 7.18% compared with 6.25% of current 20% rate. 

Dazed_and_C0nfused

JoeCrystal said:

Here is what The Growth Plan document have to say on this matter:

"There will also be one-year transitional period for Relief at Source (RAS) pension schemes to permit them to continue to claim tax relief at 20%."

So my understanding is that at least for the tax year (23-24), the people who contribute into relief at source schemes get people get 20% tax relief anyway.

Well spotted, odd it's not mentioned in the income tax document yet the 4 year transition for Gift Aid is included there!

Albermarle

MX5huggy said:

While I’m sure that is technically true. You send £2880 to your SIPP then £720 is added to it. 

If you do this tax year, then take it out next tax year paying 19% tax. 

You get £900 tax free and pay £513 on £2900 in tax  getting out £3087 an benefit of 7.18% compared with 6.25% of current 20% rate. 

£3600 minus £900 = £2700  ::

Although the tax paid of £513 is correct on £2,700. 

An extra £27 .

Xbigman

Thank you. 

I'll alter my plans to pay in 2916 for future years and make a note to double check whether its held at 2880 next (tax) year.



Darren