Savings interest in 40% band
Comments
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Thanks D&C, yes that is the para from the Alpha website.
Have I therefore misconstrued the tax relief mentioned in the para by thinking it means basic rate relief is added to the £6k then? I think I may therefore have read across some RAS guidance into the mix and then got the £7146 figure with the higher rate pension relief element also. Sorry for the confusion.
So if I still understand correctly, I would just buy an added pension lump sum enough to bring me down from the £56k to below 50270 (the increased contributions are allowable within Alpha scheme limits) - this would not make me a higher rate taxpayer at all and the £1,000 savings nil rate band then applies?
On the tax relief mentioned in the website para, would I just be claiming then the 20% basic tax relief on the lump sum. So nothing to do with grossing up the extra pension contributions to give to HMRC and including the additional tax relief on top. That basic tax relief wouldn’t be added to the pension pot but would be returned in another way.
Sorry if I am still misunderstanding things but I think it’s all got a bit merged in my head.
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IceCreamCone10 said:
Thanks D&C, yes that is the para from the Alpha website.
Have I therefore misconstrued the tax relief mentioned in the para by thinking it means basic rate relief is added to the £6k then? I think I may therefore have read across some RAS guidance into the mix and then got the £7146 figure with the higher rate pension relief element also. Sorry for the confusion.
So if I still understand correctly, I would just buy an added pension lump sum enough to bring me down from the £56k to below 50270 (the increased contributions are allowable within Alpha scheme limits) - this would not make me a higher rate taxpayer at all and the £1,000 savings nil rate band then applies?
On the tax relief mentioned in the website para, would I just be claiming then the 20% basic tax relief on the lump sum. So nothing to do with grossing up the extra pension contributions to give to HMRC and including the additional tax relief on top. That basic tax relief wouldn’t be added to the pension pot but would be returned in another way.
Sorry if I am still misunderstanding things but I think it’s all got a bit merged in my head.
You have to contact HMRC and claim all the relief due direct from them. In practical terms it is a bit like getting an extra £6,000 Personal Allowance (where say you paid £6,000 by cheque direct to the civil service pension scheme administrators, not via your payslip).
If your total taxable income was £56k then a £6k contribution of this type would mean you weren't deemed to be a higher rate payer. And would get the full £1,000 savings nil rate band.
You are unlikely to get a tax refund though. When HMRC calculate your tax liability there will, from what you've posted so far, probably be 3 factors,
A. You owe £1.80 due to how PAYE works
B. You owe £1,400 on the untaxed interest
C. You have overpaid £1,200 from the pension contribution (for this type of contribution this always benefits you, it is never added to your pension).
Sadly HMRC have a poor track record in dealing with type of contribution and you may find it takes longer than it should to get the correct tax calculation. You really have to stress that it isn't a relief at source contribution and no tax relief was given as it was paid direct to the scheme administrator.
This thread will give you a flavour of the problems typically encountered.
https://forums.moneysavingexpert.com/discussion/6554017/nhs-pension-tax-relief-on-additional-payments1 -
Many thanks D&C, and for the background links. This is incredibly helpful plus the calculations.
My 23-4 tax position has not been calculated yet on my PTA but I have calculated myself that I owe tax on savings interest <£300 for that year. There is no other outstanding tax or issue that I am aware of. I have always had straightforward tax affairs (1250L) and standard pension contributions so far.
Given all the issues outlined, liabilities, and prospect of no tax refund, I am now thinking to skip the £6k lump sum this year, take the 40% hit on the c£8k interest this year (or when it is eventually calculated) and buy added pension by monthly contributions in the next tax year with automatic tax relief (I would also have to offset salary uplifts to get me back down to basic rate taxpayer). If the 40% savings hit means £3k tax (40% x 7500) then will that mean paying it by Simple Assessment but presumably only when final calculations are in, including from the previous year?
I’m not too averse to paying more taxed interest if it means no hassle (on getting the lump sum basic tax relief) but reducing tax over the longer term via the monthly contributions (plus a small pension boost). But everyone is different.
In hindsight I should have had the monthly contributions in this tax year to mitigate the savings interest, which has probably peaked now. Not looking forward to the subsequent taxed interest calculations either, where there is a further lag and in-year tax coding changes.
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