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Tax on pension

I'm 65 and for the first time will surpass the 40% income tax threshold this tax year by about £7500. I've read somewhere that if I was to put the £7500 in my workplace pension I would get 40% tax relief on it and save myself £1500 tax. My question is can I just pay the £7500 into pension from my bank in one sum before tax year ends and how do HMRC pick up on this. I intend to terminate this pension in new tax year. It seems you only reach pension age once and are expected to have a degree in maths to understand them! 


  • Dazed_and_C0nfused
    Do you expect to earn at least £7,500 in the current tax year (from employment or self employment income not pension income)?
  • penners324
    penners324 Posts: 2,878 Forumite
    First Anniversary First Post Name Dropper
    Self employed or salary?
  • martin_saban
    Salary PAYE
  • martin_saban
    Yes I will be earning more than£7500
  • Dazed_and_C0nfused
    Then providing you don't exceed the limits for tax relief you could pay £6,000 to a SIPP or personal pension and the pension company would add £1,500 in basic rate tax relief making a gross contribution of £7,500.

    You then need to tell HMRC and they will recalculate your tax liability taking into account the £7,500 RAS contribution.

    This increases your basic rate band by £7,500 meaning more income is taxed at 20% and less at 40%.

    In theory you could get ~£1,500 back but the exact amount depends on any tax you owe and how much higher rate tax you were actually liable to.  For example if you only paid higher rate tax on £6,900 then you would only save £1,380 (£6,900 taxed at 20% rather than 40%).

    You need to decide if you want the refund via your wages (pre 6 April 2023 never after that) or a lump sum direct from HMRC.

    You also need to make it clear to HMRC what you intend paying in RAS contributions in 2023:24 (including if that will be £0).

    A lot of the above can be ignored if you have to complete Self Assessment returns for any reason or won't be making the contribution under the RAS method.
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