Higher rate tax, PSA and pension

skitskut

In 22/23 I crept into the higher rate tax band and had £1K of savings interest so I would need to pay 40% tax on £500 of the interest.

During that same tax year I paid £3K, including basic tax relief (I've not claimed any higher tax relief), into a workplace pension via RAS contributions but since these come out after tax, HMRC have no knowledge of these. Is the £3K able to be deducted from my total or added to my threshold which would then mean I wouldn't need to pay any tax on the interest?

Thanks.

Dazed_and_C0nfused

It doesn't reduce your income but does increase the amount of your basic rate band so if HMRC aren't aware of it and you are a higher rate payer you should let them know as there could of couple different benefits.

1.  Higher rate relief on the gross contribution.
2.  An increased savings nil rate band (up to £1,000 instead of £500) meaning more interest is taxed at 0%.

skitskut

So if I tell HMRC I've paid 10K into a SIPP this tax year they'll increase my basic rate band by 10K?

[Deleted User]

skitskut said:

So if I tell HMRC I've paid 10K into a SIPP this tax year they'll increase my basic rate band by 10K?

No - it would increase it by 12500. You would need to put 8000 into your SIPP to increase the basic rate band by 10000.

skitskut

[Deleted User] said:

skitskut said:

So if I tell HMRC I've paid 10K into a SIPP this tax year they'll increase my basic rate band by 10K?

No - it would increase it by 12500. You would need to put 8000 into your SIPP to increase the basic rate band by 10000.

Ok, thanks. If my basic rate band was increased, does this also effectively increase the threshold at which my savings nil rate band goes down from £1,000 to £500 as I would now have to earn more to reach the 40% bracket?

Dazed_and_C0nfused

skitskut said:

[Deleted User] said:

skitskut said:

So if I tell HMRC I've paid 10K into a SIPP this tax year they'll increase my basic rate band by 10K?

No - it would increase it by 12500. You would need to put 8000 into your SIPP to increase the basic rate band by 10000.

Ok, thanks. If my basic rate band was increased, does this also effectively increase the threshold at which my savings nil rate band goes down from £1,000 to £500 as I would now have to earn more to reach the 40% bracket?

Yes.  You need to look at your liability ignoring the savings nil rate band and that determines how much you get, £0, £500 or £1,500.

You then calculate your actual liability factoring in the appropriate 0% band.