£40k Allowance & Tax Relief

mac123

The annual allowance limit for the current tax year is £40,000. This limit includes all your contributions, tax relief and employer contributions across all your pension arrangements.

Does this mean I can pay £40k into my pension per year or is it actually less than £40k because the £40k includes tax relief?

Thanks 

Linton

The £40K  limit is based on "contributions" which includes the amount you pay plus the basic rate tax relief which HMRC pay into a personal pension.  Note that it also includes employer contributions.  If you have a DB pension it gets a little more complicated.

Other than the £40K limit you personally are also limited to paying no more into pensions than your gross annual earnings from employment to be eligible for tax relief.  There is some carry over from one year to the next for the £40K limit but not for the earnings limit.  Are your gross earnings > £40K this tax year?

mac123

thanks … yes my earnings are c£140k and pension paid by salary sacrifice so I’ll contribute £40k but I have unused allowances of £31k so I want to use some of that

Pat38493

Linton said:

The £40K  limit is based on "contributions" which includes the amount you pay plus the basic rate tax relief which HMRC pay into a personal pension.  Note that it also includes employer contributions.  If you have a DB pension it gets a little more complicated.

Other than the £40K limit you personally are also limited to paying no more into pensions than your gross annual earnings from employment to be eligible for tax relief.  There is some carry over from one year to the next for the £40K limit but not for the earnings limit.  Are your gross earnings > £40K this tax year?

Sorry to butt in, but are you saying that if my payslip for example says my employee contribution is say £100 and my employer contribution is £100, my total contribution for the above purpose is 120+100 = 220?  But I don't see the extra 20 going into my SIPP pension account anywhere?  I always assumed that the amounts showing up as going into my SIPP (employee amount which matches what is on my payslip, plus employer amount) is the amount I should be recording for the allowance?

Dazed_and_C0nfused

Pat38493 said:

Linton said:

The £40K  limit is based on "contributions" which includes the amount you pay plus the basic rate tax relief which HMRC pay into a personal pension.  Note that it also includes employer contributions.  If you have a DB pension it gets a little more complicated.

Other than the £40K limit you personally are also limited to paying no more into pensions than your gross annual earnings from employment to be eligible for tax relief.  There is some carry over from one year to the next for the £40K limit but not for the earnings limit.  Are your gross earnings > £40K this tax year?

Sorry to butt in, but are you saying that if my payslip for example says my employee contribution is say £100 and my employer contribution is £100, my total contribution for the above purpose is 120+100 = 220?  But I don't see the extra 20 going into my SIPP pension account anywhere?  I always assumed that the amounts showing up as going into my SIPP (employee amount which matches what is on my payslip, plus employer amount) is the amount I should be recording for the allowance?

Where are you getting £20 from?

The only time tax relief is added to pension contributions are when they are "relief at source" and it's 25% that gets added (20% of the gross contribution).

mac123

So as my contributions are via salary sacrifice if my contributions are £20k and my employer contributions are £20k I should be ok?

NOTE - I know via SS it’s all ‘employer contributions’

Linton

Pat38493 said:

Linton said:

The £40K  limit is based on "contributions" which includes the amount you pay plus the basic rate tax relief which HMRC pay into a personal pension.  Note that it also includes employer contributions.  If you have a DB pension it gets a little more complicated.

Other than the £40K limit you personally are also limited to paying no more into pensions than your gross annual earnings from employment to be eligible for tax relief.  There is some carry over from one year to the next for the £40K limit but not for the earnings limit.  Are your gross earnings > £40K this tax year?

Sorry to butt in, but are you saying that if my payslip for example says my employee contribution is say £100 and my employer contribution is £100, my total contribution for the above purpose is 120+100 = 220?  But I don't see the extra 20 going into my SIPP pension account anywhere?  I always assumed that the amounts showing up as going into my SIPP (employee amount which matches what is on my payslip, plus employer amount) is the amount I should be recording for the allowance?

My reference to paying into a personal pension was as opposed to an employer scheme.  But it seems your employer scheme  pays into your personal pension.  This is not common and some SIPP providers do not support it.

Exactly how that is handled I dont know.  I suggest you talk to your employer to find out if your pension is paid under "net pay" or "relief at source".   The former being where pension contributions are deducted prior to tax being calculated and the latter where HMRC return the 20% basic rate tax directly into the pension.  Or your pension contributions could be via "Salary Sacrifice" where you take a reduced salary and the employee contributions and employer contributions are merged.


Perhaps Dazed&Confused knows more about this area.

lisyloo

mac123 said:

So as my contributions are via salary sacrifice if my contributions are £20k and my employer contributions are £20k I should be ok?

NOTE - I know via SS it’s all ‘employer contributions’

yes correct.
The £20K doesn't have income tax, employees NI and employers NI applied.
So there is no relief to claim.

The pension scheme will know this so won't be applying the tax relief.

Marcon

mac123 said:

So as my contributions are via salary sacrifice if my contributions are £20k and my employer contributions are £20k I should be ok?

NOTE - I know via SS it’s all ‘employer contributions’

Yes - employer contributions are always paid gross, whether they are 'true' employer contributions or result from SS.

Pat38493

Linton said:

Pat38493 said:

Linton said:

The £40K  limit is based on "contributions" which includes the amount you pay plus the basic rate tax relief which HMRC pay into a personal pension.  Note that it also includes employer contributions.  If you have a DB pension it gets a little more complicated.

Other than the £40K limit you personally are also limited to paying no more into pensions than your gross annual earnings from employment to be eligible for tax relief.  There is some carry over from one year to the next for the £40K limit but not for the earnings limit.  Are your gross earnings > £40K this tax year?

Sorry to butt in, but are you saying that if my payslip for example says my employee contribution is say £100 and my employer contribution is £100, my total contribution for the above purpose is 120+100 = 220?  But I don't see the extra 20 going into my SIPP pension account anywhere?  I always assumed that the amounts showing up as going into my SIPP (employee amount which matches what is on my payslip, plus employer amount) is the amount I should be recording for the allowance?

My reference to paying into a personal pension was as opposed to an employer scheme.  But it seems your employer scheme  pays into your personal pension.  This is not common and some SIPP providers do not support it.

Exactly how that is handled I dont know.  I suggest you talk to your employer to find out if your pension is paid under "net pay" or "relief at source".   The former being where pension contributions are deducted prior to tax being calculated and the latter where HMRC return the 20% basic rate tax directly into the pension.  Or your pension contributions could be via "Salary Sacrifice" where you take a reduced salary and the employee contributions and employer contributions are merged.


Perhaps Dazed&Confused knows more about this area.

Yes this is I assume because they moved us all into an employer SIPP a few years back.

I think it must be "net pay" because the percent amount of my pension contributions is deducted as a gross amount from my total gross salary for the month, and then that same amount appears paid into the SIPP - all the numbers tally, so there is no 25% that needs to come back from HMRC I don't think.  

Edit - but wait is the the terminology the other way around - as a layman, the terms being used seems to feel like "relief at source" is my one because the pension contribution was never taxed at the employer side?

lisyloo

it is a bit counter intuitive

What to look for in a pension scheme | The Pensions Regulator

• Relief at source: You can tell if it's relief at source if the pension provider has to claim the tax relief from HMRC.
• Net pay arrangements: If you need to calculate tax on the pay that is left after they have paid into the pension, then the scheme uses net pay arrangements.