LGPS Maximum Lump Sum APCs and Tax Relief

jsinc

The LGPS uses net-pay arrangements so APC tax relief is limited to tax paid. Does this mean specifically limited to tax paid via the LGPS-associated job, or more broadly limited to tax paid via LGPS job + other earnings?

Example: Someone has a part-time role for a Council with £15k salary + £5k self-employed earnings:

Combined income of £20k - £825 normal LGPS contribution - £12570 Tax free allowance = £6605 Taxable income and £1321 Tax at 20%. Would imply £6605 maximum gross lump sum APC payment with £1321 tax relief to be applied for directly with HMRC.

Is this correct, or is maximum gross lump sum APC payment limited to £15k - £825 normal LGPS contribution - £12570 Tax Free Allowance = £1605 max with £321 tax relief to be applied for? (leaving another potential £5000 gross that could be contributed to a SIPP with £1000 tax relief via relief-at-source because total taxable income across both jobs is still £6605)

It's unclear because the arrangement requires applying directly to HMRC for any tax relief, and total tax paid would be the same in both cases. But specific interplay with net pay arrangement isn't spelled out in such a case. All we can find is:

"If the application is accepted the administering authority should request payment and inform the member to claim any tax relief due on the payment from HMRC via their self-assessment tax return. Please note that tax relief will only be given on contributions up to 100% of a member’s UK taxable earnings (or, if greater, £3,600 to a “tax relief at source” arrangement)". https://www.lgpslibrary.org/assets/gas/ew/APCv1.8c.pdf
 
Thanks

Dazed_and_C0nfused

jsinc said:

The LGPS uses net-pay arrangements so APC tax relief is limited to tax paid. Does this mean specifically limited to tax paid via the LGPS-associated job, or more broadly limited to tax paid via LGPS job + other earnings?

Example: Someone has a part-time role for a Council with £15k salary + £5k self-employed earnings:

Combined income of £20k - £825 normal LGPS contribution - £12570 Tax free allowance = £6605 Taxable income and £1321 Tax at 20%. Would imply £6605 maximum gross lump sum APC payment with £1321 tax relief to be applied for directly with HMRC.

Is this correct, or is maximum gross lump sum APC payment limited to £15k - £825 normal LGPS contribution - £12570 Tax Free Allowance = £1605 max with £321 tax relief to be applied for? (leaving another potential £5000 gross that could be contributed to a SIPP with £1000 tax relief via relief-at-source because total taxable income across both jobs is still £6605)

It's unclear because the arrangement requires applying directly to HMRC for any tax relief, and total tax paid would be the same in both cases. But specific interplay with net pay arrangement isn't spelled out in such a case. All we can find is:

"If the application is accepted the administering authority should request payment and inform the member to claim any tax relief due on the payment from HMRC via their self-assessment tax return. Please note that tax relief will only be given on contributions up to 100% of a member’s UK taxable earnings (or, if greater, £3,600 to a “tax relief at source” arrangement)". https://www.lgpslibrary.org/assets/gas/ew/APCv1.8c.pdf
 
Thanks

No.  I think you are slightly over thinking this.

A net pay contribution simply reduces the amount of income which is treated as taxable.  

Rather than confused each other why not say how much you would like to pay into the LGPS.  The key thing being it is a figure you know your employer will let you contribute (they may have limits to take into account say NI deductions you would be liable to pay).

jsinc

Dazed_and_C0nfused said:

No.  I think you are slightly over thinking this.

A net pay contribution simply reduces the amount of income which is treated as taxable.  

Rather than confused each other why not say how much you would like to pay into the LGPS.  The key thing being it is a figure you know your employer will let you contribute (they may have limits to take into account say NI deductions you would be liable to pay).

Thanks. Yes probably overthinking it as don't want to get it wrong re. HMRC.

We'd like to pay in and buy as much extra LGPS pension as can be afforded, subject to getting tax relief on contributions, which is limited to tax paid (unlike a relief at source arrangement).

Realistically this means contributing over a few years, but in the example would like to pay £6605 for now which buys £X extra LGPS pension pa.

I'm unsure about employer limits on APC contributions, and don't think NI would be an issue as relates to APCs not AVCs/salary sacrifice (also under consideration though).

Dazed_and_C0nfused

jsinc said:

Dazed_and_C0nfused said:

No.  I think you are slightly over thinking this.

A net pay contribution simply reduces the amount of income which is treated as taxable.  

Rather than confused each other why not say how much you would like to pay into the LGPS.  The key thing being it is a figure you know your employer will let you contribute (they may have limits to take into account say NI deductions you would be liable to pay).

Thanks. Yes probably overthinking it as don't want to get it wrong re. HMRC.

We'd like to pay in and buy as much extra LGPS pension as can be afforded, subject to getting tax relief on contributions, which is limited to tax paid (unlike a relief at source arrangement).

Realistically this means contributing over a few years, but in the example would like to pay £6605 for now which buys £X extra LGPS pension pa.

I'm unsure about employer limits on APC contributions, and don't think NI would be an issue as relates to APCs not AVCs/salary sacrifice (also under consideration though).

I think you might have misunderstood the NI aspect.

If you earn say £1,400/month and contribute £1,400/month via a mix of normal LGPS and APC contributions you would still have some NI deducted so your take home pay would be into negative figures i.e. you owed your employer each month.  Which I suspect they wouldn't agree to.

Dazed_and_C0nfused

jsinc said:

Dazed_and_C0nfused said:

No.  I think you are slightly over thinking this.

A net pay contribution simply reduces the amount of income which is treated as taxable.  

Rather than confused each other why not say how much you would like to pay into the LGPS.  The key thing being it is a figure you know your employer will let you contribute (they may have limits to take into account say NI deductions you would be liable to pay).

Thanks. Yes probably overthinking it as don't want to get it wrong re. HMRC.

We'd like to pay in and buy as much extra LGPS pension as can be afforded, subject to getting tax relief on contributions, which is limited to tax paid (unlike a relief at source arrangement).

Realistically this means contributing over a few years, but in the example would like to pay £6605 for now which buys £X extra LGPS pension pa.

I'm unsure about employer limits on APC contributions, and don't think NI would be an issue as relates to APCs not AVCs/salary sacrifice (also under consideration though).

Ok, so combining that information with your original post is helpful.

Example: Someone has a part-time role for a Council with £15k salary + £5k self-employed earnings
£825 normal LGPS contribution

This means you have taxable earnings of £7,570.  Plus self employment profits of £5,000 (you say earnings but I presume this is really profits as earnings could be turnover or profit and turnover is of no real relevance when calculating your income tax liability).

So total non savings non dividend income of £12,570.  And therefore no income tax to pay unless you have applied for Marriage Allowance (or made Gift Aid donations).

jsinc

Dazed_and_C0nfused said:

Ok, so combining that information with your original post is helpful.

Example: Someone has a part-time role for a Council with £15k salary + £5k self-employed earnings
£825 normal LGPS contribution

This means you have taxable earnings of £7,570.  Plus self employment profits of £5,000 (you say earnings but I presume this is really profits as earnings could be turnover or profit and turnover is of no real relevance when calculating your income tax liability).

So total non savings non dividend income of £12,570.  And therefore no income tax to pay unless you have applied for Marriage Allowance (or made Gift Aid donations).

Yes profits but sorry I don't understand the numbers. How did you get to £7570?

re. NI - Ok I think I see what you mean, but this refers to lump sum APC paid to the pension fund directly not via payroll (which I didn't explain previously). NI would be unchanged and down to us to claim tax relief with HMRC.

Dazed_and_C0nfused

jsinc said:

Dazed_and_C0nfused said:

Ok, so combining that information with your original post is helpful.

Example: Someone has a part-time role for a Council with £15k salary + £5k self-employed earnings
£825 normal LGPS contribution

This means you have taxable earnings of £7,570.  Plus self employment profits of £5,000 (you say earnings but I presume this is really profits as earnings could be turnover or profit and turnover is of no real relevance when calculating your income tax liability).

So total non savings non dividend income of £12,570.  And therefore no income tax to pay unless you have applied for Marriage Allowance (or made Gift Aid donations).

Yes profits but sorry I don't understand the numbers. How did you get to £7570?

re. NI - Ok I think I see what you mean, but this refers to lump sum APC paid to the pension fund directly not via payroll (which I didn't explain previously). NI would be unchanged and down to us to claim tax relief with HMRC.

£15,000 less £825 (LGPS) less £6,605 (APC) = £7,570

Personally I think you would be wasting your time trying to claim any tax relief from HMRC like that.

You could try but it wouldn't prevent you from having to include the details on your Self Assessment return anyway when you come to complete that.

And given the PAYE tax you would avoid paying is only £321 it's debatable whether it is worth the effort when your tax return sorts everything out in the end anyway.

jsinc

Dazed_and_C0nfused said:

£15,000 less £825 (LGPS) less £6,605 (APC) = £7,570

Personally I think you would be wasting your time trying to claim any tax relief from HMRC like that.

You could try but it wouldn't prevent you from having to include the details on your Self Assessment return anyway when you come to complete that.

And given the PAYE tax you would avoid paying is only £321 it's debatable whether it is worth the effort when your tax return sorts everything out in the end anyway.

Thanks for clarifying and fair point on directly claiming with HMRC vs Self Assessment.

I think the upshot then was outlined in your first response and later. That no, tax relief on APCs is not limited to tax paid specifically on Council PAYE earnings so don't have to overthink it. Particularly when SA tax return will sort things out anyway.