Do i count as a Higher Rate Tax payer?

tunde10

Anyway for the purpose of my original question, i am currently a higher rate tax payer for savings interest purposes? Technically my Gross contribution as per pension put me under the threshold,

But how will HMRC determine that if i am still charged 40% on payslip?

Workplace offer a salary sacrifice scheme but its just a lump sum at start of year and no major savings overall as they don't add the employer savings so wasn't really worth it. But i might join that just to sort this mess out.

Dazed_and_C0nfused

Solution may just be to go back to contributing the minimum 5% then start a private pension. Although this means a Tax return and reclaiming the 40% tax back at end of Tax year. Thanks for your help!

Claiming higher rate tax relief on RAS pension contributions isn't a reason to need to complete a tax return.

If you have to file one for some other reason you include the RAS contributions on the return but you don't need to file one if no valid reason exists.

Dazed_and_C0nfused

tunde10 said:

Anyway for the purpose of my original question, i am currently a higher rate tax payer for savings interest purposes? Technically my Gross contribution as per pension put me under the threshold,

But how will HMRC determine that if i am still charged 40% on payslip?

Workplace offer a salary sacrifice scheme but its just a lump sum at start of year and no major savings overall as they don't add the employer savings so wasn't really worth it. But i might join that just to sort this mess out.

What happens on a particular pay day is of no relevance.

It's your overall position for the tax year which counts.

Say you have total taxable income of £55,000 but contribute £5,000 (gross) to a RAS pension pension scheme.

Your taxable income remains £55,000 but your basic rate band is increased by £5,000 so you wouldn't be liable to higher rate tax and would be entitled to a savings nil rate band of £1,000.

Salary sacrifice is usually the most tax efficient method on that level of earnings. 

As they are actually employer contributions you miss out on the pension tax relief i.e. you have to sacrifice £5,000 to get £5,000 into your pension fund rather than paying the £4,000 you would with RAS.  But you avoid paying tax and NI on the salary that has been sacrificed 

tunde10

Dazed_and_C0nfused said:

As they are actually employer contributions you miss out on the pension tax relief i.e. you have to sacrifice £5,000 to get £5,000 into your pension fund rather than paying the £4,000 you would with RAS.  But you avoid paying tax and NI on the salary that has been sacrificed 

Thanks for the detailed explanation.

On the quoted though. Even with avoiding paying tax on the sacrificed amount, i dont see the major benefit in comparison to regular scheme.

I think it comes into it's own when employers shares either part or all of their Tax savings with the employee. If they are pocketing it in full, then i prefer the the flexibility of normal work scheme / private scheme

Albermarle

tunde10 said:

Dazed_and_C0nfused said:

As they are actually employer contributions you miss out on the pension tax relief i.e. you have to sacrifice £5,000 to get £5,000 into your pension fund rather than paying the £4,000 you would with RAS.  But you avoid paying tax and NI on the salary that has been sacrificed 

Thanks for the detailed explanation.

On the quoted though. Even with avoiding paying tax on the sacrificed amount, i dont see the major benefit in comparison to regular scheme.

I think it comes into it's own when employers shares either part or all of their Tax savings with the employee. If they are pocketing it in full, then i prefer the the flexibility of normal work scheme / private scheme

With salary sacrifice you do not gain in income tax terms, but you do save on paying NI. For most people this means a saving of around 13% on pension contributions, but only 2% for higher earners. Of course it is better if the employer also shares their savings.
The other advantage is that there is no need to claim back the higher rate tax relief on the contributions as you never paid any tax on them in the first place.

tunde10

Agreed! The amount i was willing to sacrifice was the portion that makes me a higher rate Tax payer so i'd only really save 2%.

It's not worth it for me as i do like the flexibility of changing my mind during the year