Tax relief on private pension contributions

SunnyBunny

Hi

At the beginning of the year HMRC informed me that due to some of my income being subject to 40% tax I owed approx £2.5k payable in the last 3 months of this financial year.   

I was delighted to read on Unbiased.co.uk that I can reclaim the extra 20% tax relief up to the amount I paid higher rate tax on as I had contributed at least this amount to my SIPP.  I don't do a self assessment so will have to contact HMRC to claim.

The detail on how to claim etc is on HMRC's website 
https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

I'll wait until April so that I can properly check my income.

Any way posting here just in case others might benefit.

Happy Sunny Sunday (well it is here at the moment)

molerat

Why wait until April to check your income ?  Ensure your on line tax account shows the correct estimated income from all sources then phone HMRC and tell them how much GROSS you are contributing to your SIPP in the tax year and they will sort your coding to reduce the 40% tax paid from your income, no need to wait until the middle of next year to get it back.

QrizB

SunnyBunny said:

At the beginning of the year HMRC informed me that due to some of my income being subject to 40% tax I owed approx £2.5k payable in the last 3 months of this financial year.

Was the £2500 for 2023-24? Or for 2024-25?

SunnyBunny

molerat said:

Why wait until April to check your income ?  Ensure your on line tax account shows the correct estimated income from all sources then phone HMRC and tell them how much GROSS you are contributing to your SIPP in the tax year and they will sort your coding to reduce the 40% tax paid from your income, no need to wait until the middle of next year to get it back.

The reason I was going to wait until April is that the estimate on savings interest that maybe overestimated but probably only by a couple of hundred. 
This week received another message to say I owe a few hundred for the FY 23/24 tax year so I'll mention that when I call them too.

Thanks for the tip I haven't been in this position before so good to know. 

SunnyBunny

QrizB said:

SunnyBunny said:

At the beginning of the year HMRC informed me that due to some of my income being subject to 40% tax I owed approx £2.5k payable in the last 3 months of this financial year.

Was the £2500 for 2023-24? Or for 2024-25?

QrizB said:

SunnyBunny said:

At the beginning of the year HMRC informed me that due to some of my income being subject to 40% tax I owed approx £2.5k payable in the last 3 months of this financial year.

Was the £2500 for 2023-24? Or for 2024-25?

£2500 for this tax year FY24/25.  
Receive another message this week to say I owe another few hundred for FY 23/24.
When I call HMRC will also mention that too. 
Thanks. 

Albermarle

OP
There are lots of threads about tax relief and of course pensions in general, so probably worth keeping an eye on the forum from time to time.
I would suggest reading through it, but half a Million posts might get a bit much !

SunnyBunny

Thanks @Albermarle - I have been a lurker on the pensions forum for some time and am thankful for learning along the way, including salary sacrifice and making the most of pension tax breaks. 

This year is the first time I've had to pay 40% tax so another bit of learning and more reading ahead. 

Dazed_and_C0nfused

SunnyBunny said:

QrizB said:

SunnyBunny said:

At the beginning of the year HMRC informed me that due to some of my income being subject to 40% tax I owed approx £2.5k payable in the last 3 months of this financial year.

Was the £2500 for 2023-24? Or for 2024-25?

QrizB said:

SunnyBunny said:

At the beginning of the year HMRC informed me that due to some of my income being subject to 40% tax I owed approx £2.5k payable in the last 3 months of this financial year.

Was the £2500 for 2023-24? Or for 2024-25?

£2500 for this tax year FY24/25.  
Receive another message this week to say I owe another few hundred for FY 23/24.
When I call HMRC will also mention that too. 
Thanks. 

Did you make any relief at source contributions during 2023-24?

If not there is nothing you can do about that now as the tax relief is only due for the tax year you made a contribution in.

If you did make some relief at source contributions they would increase your basic rate band by the amount of the gross contribution.

You have also mentioned salary sacrifice in another post and you are not entitled to any pension tax relief on those contributions as they are employer contributions.  The tax benefit was from not having the income that was sacrificed available to be taxed in the first place (or have to pay NI on it either).

SunnyBunny

Hi @Dazed_and_C0nfused  I do the salary sacrifice employer contributions thing via my work pensions each year so I'm not requesting any refund against that stuff.

The tax relief I'm after a refund on is against the contributions to my SIPP (I make those contributions from savings so the£ has already been taxed) so will be requesting the extra 20% refund for the proportion of my income that is subject to the 40% tax.   I made contributions in 23/24 and 24/25 tax years.   It seems I also owe approx £500 for 23/24 so hopefully I can get a refund on this amount too.     

Will the refund be paid to the SIPP pension provider?  

Thanks.

Dazed_and_C0nfused

SunnyBunny said:

Hi @Dazed_and_C0nfused  I do the salary sacrifice employer contributions thing via my work pensions each year so I'm not requesting any refund against that stuff.

The tax relief I'm after a refund on is against the contributions to my SIPP (I make those contributions from savings so the£ has already been taxed) so will be requesting the extra 20% refund for the proportion of my income that is subject to the 40% tax.   I made contributions in 23/24 and 24/25 tax years.   It seems I also owe approx £500 for 23/24 so hopefully I can get a refund on this amount too.     

Will the refund be paid to the SIPP pension provider?  

Thanks.

No, the calculation you received for 2023-24 will be revised to increase your basic rate tax band for that year by the gross contribution.  

Say you are, on the original calculation, paying 40% tax on £4,000.  And you provide HMRC with details of a gross relief at source contribution of £1,800 for 2023-24.  Your basic rate band will be increased from £37,700 to £39,500 and £1,800 more of your income will be taxed at 20% rather than 40%.

This will reduce the £500 you are currently underpaid at 5 April 2024 down to £140.  There wouldn't be a "refund" due as such.

What happens next depends on how the £500 was going to be collected.  Normally it would be via a deduction to your 2025-26 tax code.  So instead of collecting £500 in your 2025-26 tax code just £140 would be collected in this example.

NB.  If you were due an actual refund it would never be paid into your pension, it would be either repaid to you or reduces tax owed from a different tax year.

Dazed_and_C0nfused

Also, in January 2024 you said this,

I don't have to complete a self assessment return, I am an employee for an organisation and salary sacrifice brings all my salary to basic rate

How much income has been taxed at higher rate in the calculation for 2023-24 🤔