Pension Pots, keep 2 or 1?

EthicsGradient

It seems like you now have the same question as posed in this thread - https://forums.moneysavingexpert.com/discussion/6448398/contributing-to-sipp-to-keep-1-000-personal-savings-allowance . One reply says there is a way to get HMRC to alter your tax code to allow for pension payments outside your employer's scheme (without, it seems, having to do full self-assessment), though the exact details aren't yet clear.

LHW99

I believe there is an HMRC form (55?). If you do an annual payment near the end of the tax year and then claim back, it probably wouldn't take too long.

TheBanker

If you are a HR taxpayer you can write to or call(good luck!) HMRC to have your tax code adjusted to reflect pension contributions. I think you can also tell them online if you have a personal tax account set up. No need for a self assessment form, although to be honest if you keep records throughout the year the self assessment form is not a huge effort.

Note that this isn't as advantageous as Salary Sacrifice, as you cannot avoid/reclaim the employees NI. Is your employer aware that if they offered salary sacrifice, they would also save on employers NI which may cover the extra admin costs?

Albermarle

supersinglerent said:

Peeps, could you continue with the help - same topic. I've had the response from HR regarding my request to salary sacrifice scheme. This is what's come back: (increasing pension payments to reduce your tax bracket) is not possible with the NEST pension scheme. However, all is not lost. You can claim extra tax relief via a Self Assessment tax return. The employee would need to register for Self Assessment with HMRC and would have to file the tax return after the close of each tax year to gain the additional tax relief. Here is the link to HMRC website giving further details - https://www.gov.uk/guidance/pension-administrators-reclaim-tax-relief-using-relief-at-source.The downside with the self assessment is that there is additional admin needed form the employee's side to complete the assessment and there will also be a wait to get the tax refunded by completing the self assessment, this is obviously after the year has closed so it does mean that the employee does not enjoy the extra tax relief at the point the pension is calculated, instead they have to wait.


It seems like a complicated process!

OK so Nest will add basic rate tax relief, and you need to claim for any higher rate tax relief due.

Firstly of course you can only claim higher rate tax relief, if you are actually paying some 40% tax . In your first post you said you will probably be paying it in future, but not now.
Also when you are paying 40% tax, you can not  claim more higher rate relief than higher rate tax you pay.

Now the good news is that to get this higher rate relief you do not have to fill in a self assessment tax return just for this reason, so your HR dept is wrong in this respect. You do need to contact HMRC and inform them of your pension contributions, but that is all.

So when you start paying 40% tax, at the end of that tax year, you need to inform HMRC of your gross contributions in that tax year. Gross = your contributions + basic rate tax relief. This figure should be easily available from NEST website. Around October HMRC will calculate your tax for the previous tax year, and take into account these contributions, and will send you a tax rebate for any higher rate tax relief due.( assuming no other issues with your tax ) They will then adjust your tax code for the running tax year, based on you making similar/same pension contributions as the previous year. This will mean you pay less tax each month, but there will be no rebate later.

Albermarle

No need for a self assessment form, although to be honest if you keep records throughout the year the self assessment form is not a huge effort.

HMRC actively discourage people from filling in SA returns if not necessary. 

TheBanker

Albermarle said:

No need for a self assessment form, although to be honest if you keep records throughout the year the self assessment form is not a huge effort.

HMRC actively discourage people from filling in SA returns if not necessary. 

Indeed they do, but my point was that when it is necessary  it's not the huge headache that some people imply, provided you've kept records during the year.

As I said there is no need for one in the situation we're discussing here. 

PloughmansLunch

Albermarle said:

supersinglerent said:

Peeps, could you continue with the help - same topic. I've had the response from HR regarding my request to salary sacrifice scheme. This is what's come back: (increasing pension payments to reduce your tax bracket) is not possible with the NEST pension scheme. However, all is not lost. You can claim extra tax relief via a Self Assessment tax return. The employee would need to register for Self Assessment with HMRC and would have to file the tax return after the close of each tax year to gain the additional tax relief. Here is the link to HMRC website giving further details - https://www.gov.uk/guidance/pension-administrators-reclaim-tax-relief-using-relief-at-source.The downside with the self assessment is that there is additional admin needed form the employee's side to complete the assessment and there will also be a wait to get the tax refunded by completing the self assessment, this is obviously after the year has closed so it does mean that the employee does not enjoy the extra tax relief at the point the pension is calculated, instead they have to wait.


It seems like a complicated process!

OK so Nest will add basic rate tax relief, and you need to claim for any higher rate tax relief due.

Firstly of course you can only claim higher rate tax relief, if you are actually paying some 40% tax . In your first post you said you will probably be paying it in future, but not now.
Also when you are paying 40% tax, you can not  claim more higher rate relief than higher rate tax you pay.

Now the good news is that to get this higher rate relief you do not have to fill in a self assessment tax return just for this reason, so your HR dept is wrong in this respect. You do need to contact HMRC and inform them of your pension contributions, but that is all.

So when you start paying 40% tax, at the end of that tax year, you need to inform HMRC of your gross contributions in that tax year. Gross = your contributions + basic rate tax relief. This figure should be easily available from NEST website. Around October HMRC will calculate your tax for the previous tax year, and take into account these contributions, and will send you a tax rebate for any higher rate tax relief due.( assuming no other issues with your tax ) They will then adjust your tax code for the running tax year, based on you making similar/same pension contributions as the previous year. This will mean you pay less tax each month, but there will be no rebate later.

I will have a substantial amount of savings interest this year (enough for self assessment form to be required) which will take me into the higher rate tax bracket for the first time. If, for example, I was £10k over the threshold, in order to keep everything basic rate do I pay in £8k to my SIPP, the full amount over the threshold and claim back the additional 20% relief on the SA form, or something else?