Tax relief 40% tax payer

kitty5

My husband pays tax at 40% on some of his earnings ( £10000 ) We are going to make an extra contribution to his private pension to hopefully get the tax relief on the extra 20% . So would I pay in 10000 gross, so pay in 7500 with 2500 added? Will this mean we will get the full 20% extra tax back?
Hope this makes sense.
Thanks in advance for any help.

Pat38493

kitty5 said:

My husband pays tax at 40% on some of his earnings ( £10000 ) We are going to make an extra contribution to his private pension to hopefully get the tax relief on the extra 20% . So would I pay in 10000 gross, so pay in 7500 with 2500 added? Will this mean we will get the full 20% extra tax back?
Hope this makes sense.
Thanks in advance for any help.

If it's a separate private scheme that he pays into from already taxed earnings, then yes - you would need to claim the additional tax relief back from HMRC by filling in a self assessment tax return.

Also I believe you would have to put in 8000 net to get 10000 total contribution.

Albermarle

Is he not already contributing to an employer pension? Or is he maybe self employed?

Dazed_and_C0nfused

kitty5 said:

My husband pays tax at 40% on some of his earnings ( £10000 ) We are going to make an extra contribution to his private pension to hopefully get the tax relief on the extra 20% . So would I pay in 10000 gross, so pay in 7500 with 2500 added? Will this mean we will get the full 20% extra tax back?
Hope this makes sense.
Thanks in advance for any help.

Maybe.  If you are certain he pays higher rate tax on at least £10,000 then a £10,000 gross contribution should save £2,000 but it does depend on exactly how much higher rate tax he is paying.

The gross contribution increases his basic rate band, making more income taxable at 20% and less at 40%.

Say he earns £60,000 (taxable pay) then he won't pay higher rate tax on £10,000.

Also to contribute £10,000 gross he needs to pay £8,000 to the pension company.  They add £2,000 in basic rate tax relief to make it a £10k gross contribution.

kitty5

Albermarle said:

Is he not already contributing to an employer pension? Or is he maybe self employed?

He contributes to a workplace pension but has a small private pension also. 
Thank you so much everyone for your help. 

Pat38493

kitty5 said:

Albermarle said:

Is he not already contributing to an employer pension? Or is he maybe self employed?

He contributes to a workplace pension but has a small private pension also. 
Thank you so much everyone for your help. 

If he also contributes to a workplace pension and it's a DC (defined contribution) pension, he might have the option to directly contribute the extra that you want to do into his workplace pension - he could check this with the employer.  If so, this might result in the entire money going into the pension pot so for an 8000 net loss on his pay packet he would get an extra £13333 in the pension directly.  This is assuming he has sufficient income to do this and it might have to be spread over multiple months - for example by temporarily increasing the % that he pays.

Albermarle

kitty5 said:

Albermarle said:

Is he not already contributing to an employer pension? Or is he maybe self employed?

He contributes to a workplace pension but has a small private pension also. 
Thank you so much everyone for your help. 

Then he must already be getting some tax relief on his workplace pension contributions, so presumably he needs to add less than £10K additionally, if the only objective is to get the full amount of 40% tax releif available.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/79942033#Comment_79942033

may be of interest.

Linton

kitty5 said:

My husband pays tax at 40% on some of his earnings ( £10000 ) We are going to make an extra contribution to his private pension to hopefully get the tax relief on the extra 20% . So would I pay in 10000 gross, so pay in 7500 with 2500 added? Will this mean we will get the full 20% extra tax back?
Hope this makes sense.
Thanks in advance for any help.

To contribute £10K gross into a personal pension one should actually pay in £8K.  The missing £2K =20% of £10K) will be added in by HMRC.  Any higher rate tax paid above the basic rate will be refunded by HMRC at the end of the tax year when the overall figures are known.  It will of course be dependent on how much of the £10K was actually paid from higher tax band money.

Scot_39

Assuming private (or even company after tax scheme) with relief at source (assuming English rates/bands).

10k gross in plan desired. 

10k @ 20% band = 8k net.

You pay in as others say 8k net - 25% of net not gross added = £2000 relief at source via HMRC to pension provider.

(Some PP credit almost instantly, but not some SIPPS - e.g. HL 6wks-2m typical)

You then or rather your OH - notify HMRC of the 8k net / 10k gross contribution - and that adjusts the basic rate tax band up by the gross.

(Used to do via self assesment, but think it's now personal account - which HMRC will iirc try populate and recalculate automatically - but wait then months - or you could try to do yourselves and see if this triggers an earlier rebate or tax code adjustment etc - they seem to frown on SA for most individuals with simple tax affairs for past few years)

So any earnings paid into pension then shifted from the 40% tax band into the increased basic rate band - are only charged at the 20%.

So if all 10k covered, pay 20% on it = £2k tax rather than 40% = £4k tax otherwise - hence another £2k back.  (Back because it's been paid via payroll at the higher rate)

Net result 6k net income loss / but 10k gross in plan for higher band etc.

Timescales - for 2k hmrc refund - depends.

I used to file in Apr if was owed money, even before P60 issued, based on Mar payslip often back in account within few weeks.

Scot_39

kitty5 said:

Albermarle said:

Is he not already contributing to an employer pension? Or is he maybe self employed?

He contributes to a workplace pension but has a small private pension also. 
Thank you so much everyone for your help. 

It's probably to late for payroll to do anything with company scheme for this tax year.

And you would have to check with the personal pension provider or that company scheme provider for their deadlines - given 5th's 8 working days away.

(Many company DC schemes or even DB bolt on schemes like AVCs may accept additional contributions direct - but not always offer all the pensions freedom flexibility options).

 

Although most open SIPPS I think will take direct debit card credits pretty much up to the deadline (like say 11pm on the 5th).  Some even accept new accounts and debit card credit upto that sort of point.

One of my pension providers always said needed x days to guarantee cheques processed - or even at one stage y days to credit bank transfers to my account from their receiving account - at this time of the year. (Where even y was like 5 days - so everything by 31 Mar - funds and confirming forms - originals by snail mail - not email)