Higher rate tax relief on pension contributions

requirements

I would love to sense check my calculations with you good people (as HMRC seem to think different to me!) about the tax relief I should expect on the below. I have done this for the last couple of years and my calculations and HMRC’s returns have been similar, but the latest is quite far out. Basically I do not do a self-assessment, but write a letter instead (as per guidance on HMRC website).

In 2022-23 tax year my employment income was £67k. I don’t have any significant additional income – I have savings & stocks/shares investments, but these are mostly in ISA-wrappers.

I pay into my workplace pension, which is not done through salary sacrifice. As such, I pay 80% of my pension contributions through payroll and the other 20% is the tax relief claimed by my pension provider.

I thought that I could claim an extra 20% tax relief on what I earned over £50,270 for pensions (high rate band + personal allowance)  – which would be the difference between my employment income (£67k) and £50,270. This is £16,730, 20% of which would £3,346. I included this in my letter to, alongside with my certificate of contributions from pension provider – showing my personal contributions as £5,149.

HMRC calculated my refund as £850.60 for 2022-23 – less than the c.£3.3k I expected. Their calculation summary said:

• You were not given enough tax relief on your private pension contributions. You were given tax relief on contributions of £0, but the actual contributions you made were £5,149.
• HMRC have increased the amount of tax you pay at a basic rate from £37,700 to £42,849.
• You only paid tax on an estimated amount of interest of £273, but you should have paid tax on the actual amount of £939.
• 
  

Any help on the above would be most appreciated – I suspect I’ve missed understood something fundamental. Thank you.

NoMore

Your contribution was £5149 ? then you get the tax relief on that, not sure why you think you are due £3346. You would need to contribute the full £16730 to get that.

Marcon

requirements said:

I would love to sense check my calculations with you good people (as HMRC seem to think different to me!) about the tax relief I should expect on the below. I have done this for the last couple of years and my calculations and HMRC’s returns have been similar, but the latest is quite far out. Basically I do not do a self-assessment, but write a letter instead (as per guidance on HMRC website).

In 2022-23 tax year my employment income was £67k. I don’t have any significant additional income – I have savings & stocks/shares investments, but these are mostly in ISA-wrappers.

I pay into my workplace pension, which is not done through salary sacrifice. As such, I pay 80% of my pension contributions through payroll and the other 20% is the tax relief claimed by my pension provider.

I thought that I could claim an extra 20% tax relief on what I earned over £50,270 for pensions (high rate band + personal allowance)  – which would be the difference between my employment income (£67k) and £50,270. This is £16,730, 20% of which would £3,346. I included this in my letter to, alongside with my certificate of contributions from pension provider – showing my personal contributions as £5,149.

HMRC calculated my refund as £850.60 for 2022-23 – less than the c.£3.3k I expected. Their calculation summary said:

• You were not given enough tax relief on your private pension contributions. You were given tax relief on contributions of £0, but the actual contributions you made were £5,149.
• HMRC have increased the amount of tax you pay at a basic rate from £37,700 to £42,849.
• You only paid tax on an estimated amount of interest of £273, but you should have paid tax on the actual amount of £939.
• 
  

Any help on the above would be most appreciated – I suspect I’ve missed understood something fundamental. Thank you.

Your personal contributions were only £5,149, so you wouldn't get tax relief (higher or otherwise) on an amount higher than that.

Dazed_and_C0nfused

requirements said:

I would love to sense check my calculations with you good people (as HMRC seem to think different to me!) about the tax relief I should expect on the below. I have done this for the last couple of years and my calculations and HMRC’s returns have been similar, but the latest is quite far out. Basically I do not do a self-assessment, but write a letter instead (as per guidance on HMRC website).

In 2022-23 tax year my employment income was £67k. I don’t have any significant additional income – I have savings & stocks/shares investments, but these are mostly in ISA-wrappers.

I pay into my workplace pension, which is not done through salary sacrifice. As such, I pay 80% of my pension contributions through payroll and the other 20% is the tax relief claimed by my pension provider.

I thought that I could claim an extra 20% tax relief on what I earned over £50,270 for pensions (high rate band + personal allowance)  – which would be the difference between my employment income (£67k) and £50,270. This is £16,730, 20% of which would £3,346. I included this in my letter to, alongside with my certificate of contributions from pension provider – showing my personal contributions as £5,149.

HMRC calculated my refund as £850.60 for 2022-23 – less than the c.£3.3k I expected. Their calculation summary said:

• You were not given enough tax relief on your private pension contributions. You were given tax relief on contributions of £0, but the actual contributions you made were £5,149.
• HMRC have increased the amount of tax you pay at a basic rate from £37,700 to £42,849.
• You only paid tax on an estimated amount of interest of £273, but you should have paid tax on the actual amount of £939.
• 
  

Any help on the above would be most appreciated – I suspect I’ve missed understood something fundamental. Thank you.

You seem to have got your maths totally wrong!

Your contribution increases the amount of 20% tax you can pay.  Meaning less income is taxed at 40%.

But you appear to owe tax on some of your interest.

One is netted off against the other leaving you with your refund.

Perhaps you could explain what you think is wrong 🤔

Linton

Looking at your calculation you would seem to be confused and have confused HMRC as well.

Assuming the £5149 is all subject to higher rate tax:

1) When people talk about pension contributions they usually mean gross amounts.  So you paying in £5149 means a  gross contribution  of £5149 X 1.25=£6436.   

2) But you told HMRC your gross contribution was £5149.  To them that means that you paid in 80% of £5149=£4119 and should get a basic rate rebate of 0.2X£5149=£1030 which is paid into your pension and the same amount is paid to you directly to cover the additional higher rate component.

Bring in the money you owe from the underpayment of tax on interest gives you a net rebate of around £850.

Albermarle

To get the max amount of 40% tax relief, you will have to increase your contribution significantly.