£40k Allowance & Tax Relief

Linton

Pat38493 said:

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?

Yes, I have always thought the terms are the wrong way round, but that is what they are! See https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/tax-relief-and-your-pension for confirmation.