Moving money from savings to pension

scobie

I hope you don’t mind if I bump this. I feel the question got conflated and diverted into a discussion as to why I don’t do a self assessment. Simply answer - I don’t need to. While I own three properties none are currently let. I live in one.  My wife lives in another in Thailand where I will join her in a couple of years. The third is empty; effectively a city bolt hole. 

So. Back to the question.  

What exactly happens re the tax relief on additional pension contributions.  I earn c £94k a year as an employee so am in the 40percent tax bracket.  I plan to move money from share investments into my pension fund to take it to around 50-60k gross contribution for the year.  

If I move, for example, £30k into the pension I will get an immediate £7.5k uplift, meaning £37.5k gross contribution.   I get that. 

If I then complete a self assessment, am I right I thinking that I declare that contribution as £37.5k?  And would I then be granted an additional 20 percent relief taking me to the full 40 per cent relief?

And if so, would that manifest as a £7,500 reduction in my tax liability for that year, effectively meaning a rebate would be issued?

QrizB

scobie said:

If I then complete a self assessment, am I right I thinking that I declare that contribution as £37.5k?

Yes.

scobie said:

And would I then be granted an additional 20 percent relief taking me to the full 40 per cent relief?

Your basic-rate band would be increased by £37.5k. Subject to you having sufficient taxable income, that's £37.5k that you'll pay 20% on rather than 40%.

scobie said:

And if so, would that manifest as a £7,500 reduction in my tax liability for that year, effectively meaning a rebate would be issued?

If you'd already paid the tax by PAYE and had no other untaxed income, yes.

Dazed_and_C0nfused

scobie said:

I hope you don’t mind if I bump this. I feel the question got conflated and diverted into a discussion as to why I don’t do a self assessment. Simply answer - I don’t need to. While I own three properties none are currently let. I live in one.  My wife lives in another in Thailand where I will join her in a couple of years. The third is empty; effectively a city bolt hole. 

So. Back to the question.  

What exactly happens re the tax relief on additional pension contributions.  I earn c £94k a year as an employee so am in the 40percent tax bracket.  I plan to move money from share investments into my pension fund to take it to around 50-60k gross contribution for the year.  

If I move, for example, £30k into the pension I will get an immediate £7.5k uplift, meaning £37.5k gross contribution.   I get that. 

If I then complete a self assessment, am I right I thinking that I declare that contribution as £37.5k?  And would I then be granted an additional 20 percent relief taking me to the full 40 per cent relief?

And if so, would that manifest as a £7,500 reduction in my tax liability for that year, effectively meaning a rebate would be issued?

Given what you say about the rental properties why would you be completing a Self Assessment return?

Claiming higher rate relief on pension contributions isn't itself a reason to file a tax return.

Qyburn

Dazed_and_C0nfused said:

Given what you say about the rental properties why would you be completing a Self Assessment return?

Claiming higher rate relief on pension contributions isn't itself a reason to file a tax return.

Why not do it anyway? It takes very little time to do and based on my experience you get the refund in a couple of weeks.

Dazed_and_C0nfused

Qyburn said:

Dazed_and_C0nfused said:

Given what you say about the rental properties why would you be completing a Self Assessment return?

Claiming higher rate relief on pension contributions isn't itself a reason to file a tax return.

Why not do it anyway? It takes very little time to do and based on my experience you get the refund in a couple of weeks.

I agree but lots of people seem to see having to  file a tax return as something akin to torture!

Albermarle

Qyburn said:

Dazed_and_C0nfused said:

Given what you say about the rental properties why would you be completing a Self Assessment return?

Claiming higher rate relief on pension contributions isn't itself a reason to file a tax return.

Why not do it anyway? It takes very little time to do and based on my experience you get the refund in a couple of weeks.

I wanted to carry on SA when I was working, but was told to stop as there was a drive to reduce the number of people filling in SA. I tried to still do one but was blocked.
So they do not like you filling one in when you do not have to, but who gets blocked and who not is not clear.

And if so, would that manifest as a £7,500 reduction in my tax liability for that year, effectively meaning a rebate would be issued?

Yes, but HMRC will then assume you will make the same pension contribution in subsequent tax years. So for the following year, HMRC will adjust your tax code so you get more take home pay instead. ( and no rebate will be due)
If you intend to make significantly different contributions in future, you will need to inform them at some point.

JayRitchie

hi

Not sure I'm following this thread  - it seems to be touching on different things.

OP - I'm assuming that you work and pay tax in the UK with no unusual residency / passport issues?

If so - does your employer have a defined benefit or defined contribution pension scheme? Basically this means public sector or private sector.

If defined contribution - do they offer a salary sacrifice scheme?

NedS

scobie said:

So. Back to the question.  

What exactly happens re the tax relief on additional pension contributions.  I earn c £94k a year as an employee so am in the 40percent tax bracket.  I plan to move money from share investments into my pension fund to take it to around 50-60k gross contribution for the year.  

Another option, for next tax year maybe, would be to ask your employer to increase your monthly pension contributions giving you the immediate 40% tax relief under net pay arrangements (so no need to claim the extra back from HMRC), and you can supplement your reduced salary from your savings (share investments).

If you can do this under salary sacrifice, there would also be a saving in NI too.

scobie

This is very helpful. Thank you all. And to the one poster who mentioned U.K. residency etc.  Yes, I’m a British citizen. And to address another question, yes I plan to do the same for the next two tax years. The aim is to move around £75k - possibly up to £100k - from savings accounts into pensions.  I would still leave around £200-£250k in liquid investments and ISAs to use upon retirement in 2026 or 2027, leaving my hopefully tax-rebate enhanced pensions intact until at least 2030 and beyond.  At that time I would have half a million available on drawdown, a full state pension from 2031 and then utilise the two extra properties to either generate rental income or to be sold. 

JayRitchie

scobie said:

This is very helpful. Thank you all. And to the one poster who mentioned U.K. residency etc.  Yes, I’m a British citizen. And to address another question, yes I plan to do the same for the next two tax years. The aim is to move around £75k - possibly up to £100k - from savings accounts into pensions.  I would still leave around £200-£250k in liquid investments and ISAs to use upon retirement in 2026 or 2027, leaving my hopefully tax-rebate enhanced pensions intact until at least 2030 and beyond.  At that time I would have half a million available on drawdown, a full state pension from 2031 and then utilise the two extra properties to either generate rental income or to be sold. 

I'm looking to do something similar. My employers pass back their NI savings for contributions through their salary sacrifice scheme. That makes it much more worthwhile to go that route rather than just paying directly into the pension fund and reclaiming the tax. It also makes contributing into the basic rate band much more of a consideration.

It is worth checking whether this is an option for you.

I'm a bit concerned about a change of government so keeping an eye on all political rumours!