Pension tax relief

monaymadlol

Hi -- as a basic rate payer paying into a personal pension, does the 20% tax relief eg £40 of £200 a month, get added free into to the pot by the government?

Or does the £40 a month, £480 a year, get taken off your gross taxable amount and you are encouraged to put this into your pension?

I was told different things, always confused me. What's the definitive answer, please?

Tia 

molerat

When paying into a SIPP if you pay in £200 the pension co will claim £50 (not £40, £250 - 20% = £200) off the government and add it to your pension amount.

Pat38493

It depends how you are paying into your pension.

If you are employed and paid by PAYE and your employer takes the contributions using "net relief" - in that case the employer does not deduct any tax and they send the full gross amount to the pension company.  You only pay tax on the amount of salary after the pension was already deducted.

If on the other hand you are paying "Relief at Source" (for example if you have a personal SIPP and you are paying into it), the pension provider will claim the 20% tax relief back from HMRC.

Dazed_and_C0nfused

monaymadlol said:

Hi -- as a basic rate payer paying into a personal pension, does the 20% tax relief eg £40 of £200 a month, get added free into to the pot by the government?

Or does the £40 a month, £480 a year, get taken off your gross taxable amount and you are encouraged to put this into your pension?

I was told different things, always confused me. What's the definitive answer, please?

Tia 

You only ever get pension tax relief added with relief at source contributions.

Any other method of contributing can result in a personal tax saving but doesn't add anything to the contribution.

For example a RAS contribution of £100 means you end up with £125 in your pension.

A net pay contributions of £100 means you end up with £100 in your pension.  But you don't pay any tax on that £100.

xylophone

https://www.aegon.co.uk/news/net-pay-and-relief-at-source.html#:~:text=As you can see, the,income tax has been calculated.

monaymadlol

Well basically I pay 300 a month and get 75 relief which shows on my Scottish widows statement but couldn't fathom if my total monthly actual pot is 375 or a portion just helps reduce my tax liabilities on my self assessment since I have to enter the total annual pension contributions including tax relief 

Dazed_and_C0nfused

monaymadlol said:

Well basically I pay 300 a month and get 75 relief which shows on my Scottish widows statement but couldn't fathom if my total monthly actual pot is 375 or a portion just helps reduce my tax liabilities on my self assessment since I have to enter the total annual pension contributions including tax relief 

It's £375.

What happens with your Self Assessment return doesn't change that.

And any personal tax saving doesn't get added to your pension fund.

monaymadlol

Thank you guys. So I get the free 25% every month, isn't that expensive for the government! (To be taxed later in life of course)

dunstonh

monaymadlol said:

Thank you guys. So I get the free 25% every month, isn't that expensive for the government! (To be taxed later in life of course)

It is a cost to the treasury but in terms of all the tax reliefs and benefits, it is one of the least expensive to the treasury.  Plus, it brings wealth into the economy which is typically spent and in turn generates more taxation.