Annual allowance

Green_hopeful

Not sure how to tax relief works on pension investments. If I am a higher rate tax payer and I want to use my annual allowance for 23/24 can I invest £48k which the pension provider will top up to £60k and then claim the tax relief for the extra higher rate tax or is the higher rate tax relief included so that I can only invest a smaller amount or use the carry over from previous years. 

Dazed_and_C0nfused

Green_hopeful said:

Not sure how to tax relief works on pension investments. If I am a higher rate tax payer and I want to use my annual allowance for 23/24 can I invest £48k which the pension provider will top up to £60k and then claim the tax relief for the extra higher rate tax or is the higher rate tax relief included so that I can only invest a smaller amount or use the carry over from previous years. 

If you want to contribute £60k using RAS (relief at source) then you pay over £48k and the pension company will add £12k in basic rate tax relief (20% of the gross contribution).

Any personal tax savings ultimately comes back to you, it doesn't get added to the pension and doesn't count for annual allowance purposes.

I presume you know you would need pensionable earnings of at least £60k to be able to contribute that much.

And the amount of higher rate relief depends on your overall tax situation.  If you pay higher rate tax on say £15k then the higher rate relief will normally be limited to £3,000 (an extra £15,000 taxed at 20% instead of 40%).

If these contributions mean you are no longer a higher rate payer there can also be some additional benefits such as becoming eligible for Marriage Allowance or having a larger savings nil rate band (aka PSA) 

Green_hopeful

Hi thank you for your answer. I had earnings of £82k approximately after personal allowance and as a result paid higher rate tax on £44k so hopefully I should get a good amount back. 

Dazed_and_C0nfused

Green_hopeful said:

Hi thank you for your answer. I had earnings of £82k approximately after personal allowance and as a result paid higher rate tax on £44k so hopefully I should get a good amount back. 

You are using past tense.

You can never get tax relief for a tax year that is different to the tax year you paid the contribution in.  

Unused annual allowance, if relevant, just allows you to contribute more in the current tax year, it doesn't allow you to make contributions for tax years that have ended.

Green_hopeful

Had meaning this financial year but I don’t have a job now, but I received a termination payment which is taxable. 

Dazed_and_C0nfused

Green_hopeful said:

Had meaning this financial year but I don’t have a job now, but I received a termination payment which is taxable. 

Was this the ~£95k you referred to or was that the earnings in the previous tax year with a different amount as the termination payment?

Green_hopeful

It’s a combination of my earnings to July 2023 and the termination payment after the £30k nil rate. 

Dazed_and_C0nfused

So you have sufficient pensionable earnings to allow a gross contribution of £60k.

But unless you have additional taxable income later in the current tax year you won't get higher rate tax relief on it all as you will only be paying 40% tax on ~£45k