Planning for Pension Contributions 2023/2024

Spicy21

Hi,
I am starting to plan ahead for this year’s pension contributions. My salary from employment and self-employment will be £60,000 give or take.

Based on my part-time salary my pension DB contributions will be rated as £13509.21 using the x16 formula. This is net pay.

I would like to purchase additional pension for a gross payment of £42900. (Not relief at source and not net pay)

i would also like to put £25,000 into my relief at source private pension (£31,250 inc relief) however this would take me above my annual earnings for the year.

Unused Annual Allowances 

2023/2024 £60,000
2022/2023 all used
2021/2022 £31,109.12
2020/2021 £31,398.35

How much tax refund/tax code credit would I get on the £42,900? 20% - £8,580?
Would I still get £6,250 tax relief at source on the private pension contribution?

I have spoken to my private pension provider and Pension Wise but things are no clearer. I would be thankful for any advice you can give.

Thanks in advance.

Spicy21

Sorry, the forum won’t let me edit my post but other income will be £15,000 give or take from savings interest.

Marcon

If your earnings in the tax year 2023/24 will be around £60K, that's the maximum tax-relievable contribution you can make, so you can't use carry forward to make the contributions you are hoping to make and get tax relief.

Marcon

Spicy21 said:

Sorry, the forum won’t let me edit my post but other income will be £15,000 give or take from savings interest.

Savings interest doesn't count as 'relevant earnings' for pension purposes.

Dazed_and_C0nfused

Based on my part-time salary my pension DB contributions will be rated as £13509.21 using the x16 formula. This is net pay.

I would like to purchase additional pension for a gross payment of £42900. (Not relief at source and not net pay)

How much do you expect your 2023:24 P60 will show your taxable pay to be at this job?

Spicy21

Dazed_and_C0nfused said:

Based on my part-time salary my pension DB contributions will be rated as £13509.21 using the x16 formula. This is net pay.

I would like to purchase additional pension for a gross payment of £42900. (Not relief at source and not net pay)

How much do you expect your 2023:24 P60 will show your taxable pay to be at this job?

It will be a minimum of £46289.60. This is excluding any excess hours as that is an unknown at this stage.

Dazed_and_C0nfused

Spicy21 said:

Dazed_and_C0nfused said:

Based on my part-time salary my pension DB contributions will be rated as £13509.21 using the x16 formula. This is net pay.

I would like to purchase additional pension for a gross payment of £42900. (Not relief at source and not net pay)

How much do you expect your 2023:24 P60 will show your taxable pay to be at this job?

It will be a minimum of £46289.60. This is excluding any excess hours as that is an unknown at this stage.

That would mean the tax relief will depend on your other taxable income, primarily the self employment or any extra hours.

The pension contribution works ike your Personal Allowance so you may receive no tax relief on some of it if your other income is small.

You don't get a fixed % like you do with RAS contributions.

MX5huggy

The tax relief limit has been addressed. 

The Annual Allowance is separate and you may exceed £60000 if the Pension Input Amount from your DB is high. 

But they are separate tests that often get confused and mashed together.

zagfles

Spicy21 said:

Hi,
I am starting to plan ahead for this year’s pension contributions. My salary from employment and self-employment will be £60,000 give or take.

Based on my part-time salary my pension DB contributions will be rated as £13509.21 using the x16 formula. This is net pay.

I would like to purchase additional pension for a gross payment of £42900. (Not relief at source and not net pay)

i would also like to put £25,000 into my relief at source private pension (£31,250 inc relief) however this would take me above my annual earnings for the year.

Unused Annual Allowances 

2023/2024 £60,000
2022/2023 all used
2021/2022 £31,109.12
2020/2021 £31,398.35

How much tax refund/tax code credit would I get on the £42,900? 20% - £8,580?
Would I still get £6,250 tax relief at source on the private pension contribution?

I have spoken to my private pension provider and Pension Wise but things are no clearer. I would be thankful for any advice you can give.

Thanks in advance.

You're well within the annual allowance with carry forwards, so that's not the issue.

The limit for tax relief is 100% of relevant earnings, this is your issue. So ignore the DB pension PIA (that's a concept that only applies to the AA). What matters is your contributions, so if you just consider your taxable employment income this will already have deducted them as it's net pay.

If the £42900 is a payment direct (outside payroll) to the DB scheme, this will reduce taxable income.

So if your taxable employment income plus taxable SE profits are £60k, you'll only be left with a bit over £17k relevant earnings which you can get tax relief on. Your proposed SIPP contribution would blow this.

Theroretically you could still do it if your pension provider allows non relievable contributions, but you wouldn't be entitled to tax relief on the excess so why would you want to?

Albermarle

Would I still get £6,250 tax relief at source on the private pension contribution?

Just for clarity your pension provider will add tax relief ( and claim it from HMRC) automatically to any contributions you make. It is up to you to be sure that you do not overcontribute, and get more relief than you are entitled to . Otherwise it will all have to be unwound at some future point.

Spicy21

Thanks for all your help, I think I’ve got it now!

2023/2024
Relevant earnings £60,000 
My pension contributions via salary £4331.39
My pension contributions via lump sum outside payroll/gross £42,900
Total work pension contributions £47,231.39

Amount of relevant earnings left £12,768.61
So maximum of £10,214.89 that can be put into private RAS pension.

No benefit to paying in anything over my relevant earnings as no tax relief possible above this limit and essentially I would end up paying tax twice as already taxed income invested in my pension above my relevant earnings for the year would be taxed again when I draw my pension.