Tax Relief Limit

DE_612183

I'm a bit confused - If I pay a lump sum into my pension ( say £50 ) can I get tax relief on the whole sum ( 25% = £12,500 ) or just on £3,600 ( 25% = £900 ).

I'm still working an expect salary this year to be about £70k - I've only paid in about £3k into a private pension so far this year.

dunstonh

DE_612183 said:

I'm a bit confused - If I pay a lump sum into my pension ( say £50 ) can I get tax relief on the whole sum ( 25% = £12,500 ) or just on £3,600 ( 25% = £900 ).

I'm still working an expect salary this year to be about £70k - I've only paid in about £3k into a private pension so far this year.

When you make a pension contribution, it is the gross figure that is classed as the contribution.  i.e. £62.50 gross is £50pm net.

You work out the tax relief from the gross figure. £3600 gross gets 20% relief (£720) and you pay £2,880.

I'm still working an expect salary this year to be about £70k - I've only paid in about £3k into a private pension so far this year.

So, £60k gross minus £3k (if that is the gross figure - and minus any other amounts that will be paid in the tax year).    You also have the potential to utilise carry forward if you want to go higher.

MEM62

Based on the figures you have provided you will received tax relief at 40% as you are higher rate tax payer.  The basic rate will be applied when you pay the money into your pension and the additional will need to be reclaimed from HMRC.   As another thought, if you are earning £70K annually, £3K is nowhere near a big enough contribution to your pension.  Use one of the online calculators to see what £3k a year will give you as an income when you retire - you will be disappointed.         

Albermarle

.
Although if you say you have paid £3k so far this year, what do your expect to contribute for the full tax year?
Maximising pension contributions is nearly always a good move for a 40% taxpayer, if you can afford it of course. 

squirrelpie

Do you just have one pension? Or is the £3k contribution to one pension among several?

Qyburn

DE_612183 said:

I'm a bit confused - If I pay a lump sum into my pension ( say £50 ) can I get tax relief on the whole sum ( 25% = £12,500 ) or just on £3,600 ( 25% = £900 ).

If you pay £50 into your pension then they'll add basic rate tax relief making it £62.50 added to the pension fund. If it also saves you higher rate tax, that will be paid back to you and not intod to the pension.

DE_612183

MEM62 said:

Based on the figures you have provided you will received tax relief at 40% as you are higher rate tax payer.  The basic rate will be applied when you pay the money into your pension and the additional will need to be reclaimed from HMRC.   As another thought, if you are earning £70K annually, £3K is nowhere near a big enough contribution to your pension.  Use one of the online calculators to see what £3k a year will give you as an income when you retire - you will be disappointed.         

Thanks for this @MEM62.

Regarding the £3k a year - thats not an issue - I have other income streams, and the pension pot is ok as well.

Regarding the 40% - how do I claim that back - and is there a threshold - for instance last tax year I paid in about £5k, but my income put me into the 40% - could I still claim, or is it only when the pension contributions exceed the 40% threshold?

DE_612183

Albermarle said:

.
Although if you say you have paid £3k so far this year, what do your expect to contribute for the full tax year?
Maximising pension contributions is nearly always a good move for a 40% taxpayer, if you can afford it of course. 

Albermarle said:

.
Although if you say you have paid £3k so far this year, what do your expect to contribute for the full tax year?
Maximising pension contributions is nearly always a good move for a 40% taxpayer, if you can afford it of course. 

Well, I was hoping to add £50k to the £3k thats already there...

DE_612183

squirrelpie said:

Do you just have one pension? Or is the £3k contribution to one pension among several?

One pension

Dazed_and_C0nfused

DE_612183 said:

squirrelpie said:

Do you just have one pension? Or is the £3k contribution to one pension among several?

One pension

In your original post you said this.

I'm still working an expect salary this year to be about £70k - I've only paid in about £3k into a private pension so far this year.

How come you haven't either been auto enrolled into a pension with your employer or joined their scheme?

DE_612183

Dazed_and_C0nfused said:

DE_612183 said:

squirrelpie said:

Do you just have one pension? Or is the £3k contribution to one pension among several?

One pension

In your original post you said this.

I'm still working an expect salary this year to be about £70k - I've only paid in about £3k into a private pension so far this year.

How come you haven't either been auto enrolled into a pension with your employer or joined their scheme?

Self employed