Maximising pension contributions for tax relief

LV_426

I have received £10k, generously given to me by my parents. I'm considering topping up my pension contributions to maximise tax relief.
My gross salary is about £62k
As I understand it, that means I can claim 40% tax relief on about £12k of pension contributions.
The pension scheme is 'relief at source', so the provider (Nest) automatically adds 20%. I would claim the additional 20% through SA, and I believe you can take this paid into your bank account, rather than an adjustment of tax code for the next year, correct?

Any reason I shouldn't do this? Pretty boring, but I really can't think of anything major I want to spend the money on, and if I'm right, it means I get an additional £5k+ into my pension.

Dazed_and_C0nfused

Nest will "add" 25%.

So your £10,000 becomes £12,500.

£12,500 x 20% = £2,500

You can never get higher rate tax relief for one tax year in the tax code of a later tax year.

If you don't claim relief in year you will get a refund from HMRC after the tax year ends, not a tax code adjustment.

af1963

This payment would be added to anything else that you're already contributing in the current tax year. If you're already making other contributions, that may mean that some of the extra payment only qualifies for 20% tax relief.

There might be some small advantage in only contributing the gross amount that you will get 40% tax relief on, and holding back any excess until the next tax year so you can do a similar thing then, if you expect to still be paying 40% tax next year.

billy2shots

Dazed_and_C0nfused said:

Next will "add" 25%.

That is extremely charitable on Next. I know it's Christmas but still. 

Dazed_and_C0nfused

billy2shots said:

Dazed_and_C0nfused said:

Next will "add" 25%.

That is extremely charitable on Next. I know it's Christmas but still. 

Free t-shirt with contribution 😊

LV_426

af1963 said:

This payment would be added to anything else that you're already contributing in the current tax year. If you're already making other contributions, that may mean that some of the extra payment only qualifies for 20% tax relief.

There might be some small advantage in only contributing the gross amount that you will get 40% tax relief on, and holding back any excess until the next tax year so you can do a similar thing then, if you expect to still be paying 40% tax next year.

Yes I've already contributed £3k, so I'd be using the money to top it up to the maximum contribution that I could claim the extra 20% on.
As I understand it, I can claim additional 20% on the amount from £50k, up to my gross salary.

Dazed_and_C0nfused

LV_426 said:

af1963 said:

This payment would be added to anything else that you're already contributing in the current tax year. If you're already making other contributions, that may mean that some of the extra payment only qualifies for 20% tax relief.

There might be some small advantage in only contributing the gross amount that you will get 40% tax relief on, and holding back any excess until the next tax year so you can do a similar thing then, if you expect to still be paying 40% tax next year.

Yes I've already contributed £3k, so I'd be using the money to top it up to the maximum contribution that I could claim the extra 20% on.
As I understand it, I can claim additional 20% on the amount from £50k, up to my gross salary.

It's not necessarily as simple as that.

Salary is often different to taxable pay so you need to think about what will be on your P60 (as taxable pay) and any other taxable income you might have.

And higher rate tax starts from £50,270 now (unless Scottish resident for tax purposes).

Albermarle

Any reason I shouldn't do this? Pretty boring, but I really can't think of anything major I want to spend the money on, and if I'm right, it means I get an additional £5k+ into my pension.

 40% tax relief is the gift that keeps on giving, and if possible you should take advantage of it as much as possible in subsequent tax years .

It might not seem so boring when you can retire early !

LV_426

Albermarle said:

Any reason I shouldn't do this? Pretty boring, but I really can't think of anything major I want to spend the money on, and if I'm right, it means I get an additional £5k+ into my pension.

 40% tax relief is the gift that keeps on giving, and if possible you should take advantage of it as much as possible in subsequent tax years .

It might not seem so boring when you can retire early !

Amen to that!!
I realise now that this kind of pension scheme makes you more aware of the tax benefits to be had, as opposed to sal sacrifice, where it's all taken care of for you, and the tax benefits are not as apparent.
Seeing the additional 20% contributions going in, and realising just how much extra can be claimed is very pleasing.
Going forward, I'll be topping this up from my ISA. I mean a free £5k is not to be sniffed at.

Dazed_and_C0nfused

LV_426 said:

Albermarle said:

Any reason I shouldn't do this? Pretty boring, but I really can't think of anything major I want to spend the money on, and if I'm right, it means I get an additional £5k+ into my pension.

 40% tax relief is the gift that keeps on giving, and if possible you should take advantage of it as much as possible in subsequent tax years .

It might not seem so boring when you can retire early !

Amen to that!!
I realise now that this kind of pension scheme makes you more aware of the tax benefits to be had, as opposed to sal sacrifice, where it's all taken care of for you, and the tax benefits are not as apparent.
Seeing the additional 20% contributions going in, and realising just how much extra can be claimed is very pleasing.
Going forward, I'll be topping this up from my ISA. I mean a free £5k is not to be sniffed at.

Although for the majority of people salary sacrifice is better financially.

Albermarle

The pension scheme is 'relief at source', so the provider (Nest) automatically adds 20%. I would claim the additional 20% through SA, and I believe you can take this paid into your bank account, rather than an adjustment of tax code for the next year, correct?

The first year you do this, you will get a tax rebate paid to your bank account. Then HMRC will assume that you will make the same pension contribution in the next tax year and adjust your tax code accordingly. So you will get more take home pay each month but no further rebate will be due.

If the next tax year you make a smaller contribution ( not recommended as you want to take maximum advantage of the 40% relief) then you need to inform HMRC or you  could end up owing them. Or if you have an on line personal tax account you can request a change in tax code.