Another "mortgage vs pension" post...

Albermarle

Pat38493 said:

dlevene said:

Okay that's helpful. Just one point of clarification, when you say that "you are not allowed to contribute more in any tax year to the pension, than the amount you received from earned income", is the corollary of that, you are limited on the amount that benefits from the higher rate of tax relief, equivalent to the amount of salary taxed at that level? 

I'm just trying to clarify vacheron's comment on what the "overhead" is...

Yes - I believe it means that for example if you earned £40K in the year, you cannot put more than 40K into the pension including any tax relief and employer contributions that were made i.e. the total that went into the pension.

*Technically I think it is that you cannot get tax relief on more than that amount, but that’s just a technicality because there would be no point contributing more, and most providers will not be able to manage it.

Not quite correct.

If you earned £40K pa the max you can add and get tax relief is £40K gross.
The employers contribution is a separate point and will be on top of this . With the new £60K pa limit on adding to pensions, the employer could add another £20K ( ignoring any carry forward )

On the second point, in practical terms the provider will add tax relief to any amount you contribute. It is up to you not to add more than you should. 

Pat38493

Albermarle said:

Pat38493 said:

dlevene said:

Okay that's helpful. Just one point of clarification, when you say that "you are not allowed to contribute more in any tax year to the pension, than the amount you received from earned income", is the corollary of that, you are limited on the amount that benefits from the higher rate of tax relief, equivalent to the amount of salary taxed at that level? 

I'm just trying to clarify vacheron's comment on what the "overhead" is...

Yes - I believe it means that for example if you earned £40K in the year, you cannot put more than 40K into the pension including any tax relief and employer contributions that were made i.e. the total that went into the pension.

*Technically I think it is that you cannot get tax relief on more than that amount, but that’s just a technicality because there would be no point contributing more, and most providers will not be able to manage it.

Not quite correct.

If you earned £40K pa the max you can add and get tax relief is £40K gross.
The employers contribution is a separate point and will be on top of this . With the new £60K pa limit on adding to pensions, the employer could add another £20K ( ignoring any carry forward )

On the second point, in practical terms the provider will add tax relief to any amount you contribute. It is up to you not to add more than you should. 

Sorry yes my mistake - it’s the 60K limit which caps the employer contributions as well.

dlevene

Okay that's brilliant, really helpful, thank you so much.

Looks like Nest do relief at source, so I'm going to claim back the higher rate rebate from HMRC, and then I can start planning what to do in future years!

vacheron

dlevene said:

Okay that's brilliant, really helpful, thank you so much.

Looks like Nest do relief at source, so I'm going to claim back from HMRC, and then I can start planning what to do in future years!

My interest in pensions started long ago when I received a demand from HMRC that they believed I owed them £450 in savings income tax. 

Turned out I didn’t owe anything,, but the subsequent research I did taught me that I should have been re-claiming the extra 20% tax from my pension contributions for the previous 4 years. 

Their £450 demand turned into an almost £5k refund. And it was then I realised that pensions are basically free money…. and quite a lot of it over a lifetime!

… plus HMRC haven’t written to me with any more demands since! 

Albermarle

dlevene said:

Okay that's brilliant, really helpful, thank you so much.

Looks like Nest do relief at source, so I'm going to claim back the higher rate rebate from HMRC, and then I can start planning what to do in future years!

The first tax year you inform them of your pension contributions, you will receive any higher rate tax relief due as a rebate direct to you.
Then they will assume that you will make similar contributions the following year, and adjust your tax code for 24/25 accordingly.
So you will get the higher rate relief in the form of a more take home pay each month.