Salary Sacrifice

Superhoopza

Sorted my 2023-24 return and got my refund too.

I've got another question around salary sacrifice and higher tax relief, if your salary sacrificed net pay still keeps you above the higher tax band threshold, can you still claim higher tax relief? I.e. if I don't change my tax code from 1257L, will I still be paying too much income tax?

Thanks

Dazed_and_C0nfused

Superhoopza said:

Sorted my 2023-24 return and got my refund too.

I've got another question around salary sacrifice and higher tax relief, if your salary sacrificed net pay still keeps you above the higher tax band threshold, can you still claim higher tax relief? I.e. if I don't change my tax code from 1257L, will I still be paying too much income tax?

Thanks

You can never claim any tax relief relating to salary sacrifice pension contributions.

You are agreeing to a reduced salary in return for additional employer contributions and no relief is due to you from employer contributions.

Obviously you don't pay tax or NI on the salary you have sacrificed but there is nothing else you can claim.

Superhoopza

Dazed_and_C0nfused said:

Superhoopza said:

Sorted my 2023-24 return and got my refund too.

I've got another question around salary sacrifice and higher tax relief, if your salary sacrificed net pay still keeps you above the higher tax band threshold, can you still claim higher tax relief? I.e. if I don't change my tax code from 1257L, will I still be paying too much income tax?

Thanks

You can never claim any tax relief relating to salary sacrifice pension contributions.

You are agreeing to a reduced salary in return for additional employer contributions and no relief is due to you from employer contributions.

Obviously you don't pay tax or NI on the salary you have sacrificed but there is nothing else you can claim.

Ok thanks very much. Still not entirely sure how it all works, as I just went on to salary sacrifice to reduce my gross pay and therefore the amount I paid in Tax and NI, but yes my employer contributions have also increased which is nice. Shame I didn't do this from the start but can't fix that now.

Dazed_and_C0nfused

Superhoopza said:

Dazed_and_C0nfused said:

Superhoopza said:

Sorted my 2023-24 return and got my refund too.

I've got another question around salary sacrifice and higher tax relief, if your salary sacrificed net pay still keeps you above the higher tax band threshold, can you still claim higher tax relief? I.e. if I don't change my tax code from 1257L, will I still be paying too much income tax?

Thanks

You can never claim any tax relief relating to salary sacrifice pension contributions.

You are agreeing to a reduced salary in return for additional employer contributions and no relief is due to you from employer contributions.

Obviously you don't pay tax or NI on the salary you have sacrificed but there is nothing else you can claim.

Ok thanks very much. Still not entirely sure how it all works, as I just went on to salary sacrifice to reduce my gross pay and therefore the amount I paid in Tax and NI, but yes my employer contributions have also increased which is nice. Shame I didn't do this from the start but can't fix that now.

If you want it avoid paying higher rate tax you can either increase your sacrifice, and have less pay.

Or make separate relief at source (RAS) contributions to a personal pension or SIPP.  They will have basic rate relief added by the pension company and the gross contribution increases your basic rate band so you can pay more basic rate tax and less higher rate.

For example you pay £1,000 and get £1,250 in your pension with the basic rate tax relief added.  You then tell HMRC and they increase your basic rate band by £1,250.

But there is no NI saving with RAS and you have to involve HMRC to get the higher rate relief so for someone in your situation salary sacrifice usually the preferred option.

Superhoopza

Dazed_and_C0nfused said:

Superhoopza said:

Dazed_and_C0nfused said:

Superhoopza said:

Sorted my 2023-24 return and got my refund too.

I've got another question around salary sacrifice and higher tax relief, if your salary sacrificed net pay still keeps you above the higher tax band threshold, can you still claim higher tax relief? I.e. if I don't change my tax code from 1257L, will I still be paying too much income tax?

Thanks

You can never claim any tax relief relating to salary sacrifice pension contributions.

You are agreeing to a reduced salary in return for additional employer contributions and no relief is due to you from employer contributions.

Obviously you don't pay tax or NI on the salary you have sacrificed but there is nothing else you can claim.

Ok thanks very much. Still not entirely sure how it all works, as I just went on to salary sacrifice to reduce my gross pay and therefore the amount I paid in Tax and NI, but yes my employer contributions have also increased which is nice. Shame I didn't do this from the start but can't fix that now.

If you want it avoid paying higher rate tax you can either increase your sacrifice, and have less pay.

Or make separate relief at source (RAS) contributions to a personal pension or SIPP.  They will have basic rate relief added by the pension company and the gross contribution increases your basic rate band so you can pay more basic rate tax and less higher rate.

For example you pay £1,000 and get £1,250 in your pension with the basic rate tax relief added.  You then tell HMRC and they increase your basic rate band by £1,250.

But there is no NI saving with RAS and you have to involve HMRC to get the higher rate relief so for someone in your situation salary sacrifice usually the preferred option.

Cheers,

Not in a position to be making additional pension contributions at the moment but will give it some thought at a later date.

MetaPhysical

lisyloo said:

MDMD said:

penners324 said:

Your savings will be 42% or 32%

They can be more than that. Due to the way NI works on a monthly bays you can get 40% or 45% tax relief plus 12% NI relief of you make lumpy contributions.

I've never worked anywhere in over 30 years that allows lumpy contributions.
Some larger employers only allow you to change it once per year unless there are exceptional circumstances (like a death, child etc.)

I edit my SS pension contributions monthly to take into account bonuses that I might not need as cash and so put them into my pension.