Confused with Net Pay / Relief at Source / Salary Sacrifce

Dazed_and_C0nfused

PJM_62 said:

Does this mean that someone who has a salary of 55,270 per year (ie 5k into 40% tax band) and has total of 8k pension payments during that year (net pay pension), 
gets 40% tax relief on 5k of pension ?
and 20% tax relief on the other 3k ?
and pays 20% income tax on all taxable salary (because pension payments dropped them back out of 40% band) ?
and has an allowance of 1k for savings interest and 20% tax over that ?

Nearly.

HMRC are interested in taxable income not salary so in your example they just see taxable earnings of £47,270.

There is no separate "allowance" for interest but if the only taxable income was £47,270 earnings and say £3,000 in interest then the interest would be taxed like this,

£1,000 x 0% (savings nil rate band)
£2,000 x 20% (savings basic rate band)

Plus 2% HICBC if that was a factor.

PJM_62

Dazed_and_C0nfused said:

PJM_62 said:

Does this mean that someone who has a salary of 55,270 per year (ie 5k into 40% tax band) and has total of 8k pension payments during that year (net pay pension), 
gets 40% tax relief on 5k of pension ?
and 20% tax relief on the other 3k ?
and pays 20% income tax on all taxable salary (because pension payments dropped them back out of 40% band) ?
and has an allowance of 1k for savings interest and 20% tax over that ?

Nearly.

HMRC are interested in taxable income not salary so in your example they just see taxable earnings of £47,270.

There is no separate "allowance" for interest but if the only taxable income was £47,270 earnings and say £3,000 in interest then the interest would be taxed like this,

£1,000 x 0% (savings nil rate band)
£2,000 x 20% (savings basic rate band)

Plus 2% HICBC if that was a factor.

Ah ok , think I got it now.
So in my example , the tax relief applied to the pension contributions would be 20% for all 8k of it ? because the taxable pay was less than 50,270 ?

And no 40% pension tax relief happens until taxable pay (Salary - pension contributions) is over 50,270 ?   

Dazed_and_C0nfused

PJM_62 said:

Dazed_and_C0nfused said:

PJM_62 said:

Does this mean that someone who has a salary of 55,270 per year (ie 5k into 40% tax band) and has total of 8k pension payments during that year (net pay pension), 
gets 40% tax relief on 5k of pension ?
and 20% tax relief on the other 3k ?
and pays 20% income tax on all taxable salary (because pension payments dropped them back out of 40% band) ?
and has an allowance of 1k for savings interest and 20% tax over that ?

Nearly.

HMRC are interested in taxable income not salary so in your example they just see taxable earnings of £47,270.

There is no separate "allowance" for interest but if the only taxable income was £47,270 earnings and say £3,000 in interest then the interest would be taxed like this,

£1,000 x 0% (savings nil rate band)
£2,000 x 20% (savings basic rate band)

Plus 2% HICBC if that was a factor.

Ah ok , think I got it now.
So in my example , the tax relief applied to the pension contributions would be 20% for all 8k of it ? because the taxable pay was less than 50,270 ?

And no 40% pension tax relief happens until taxable pay (Salary - pension contributions) is over 50,270 ?   

No, your net pay contributions mean you have avoided paying 40% tax on some of your salary and avoided 20% tax on a smaller portion.

Because of the knock on effect o nothings like the amount of savings nil rate band it is tricky to know the exact saving but the simplest way is to calculate your tax liability with £55,270 as the earnings element and then calculate it again with £47,270 as the earnings.

The difference between the two is the tax saved by making the net pay contributions.