Pension tax relief

cdbe11

Having been stung last year with slipping into the 40% bracket my teacher wife is about 10k into it this year. We've made an application to buy "additional pension" in the TPS, payable via a lump sum - it's about 11k for 3 lots of £250. 

As we have to pay this in full I presume there's a mechanism for claiming tax relief? If so, what is this? And would the tax relief be repaid at 40% of all of it or only the bit that will have been taxed at 40% - if that makes sense.

Also, as we don't really want to put in in the TPS (just left it a bit last minute I think) but don't want to pay a load of tax, could we open a SIPP or something instead? I understand we can get 25% back tax free and drawdown the rest or whatever.

Age 52, retiring at around 55/6.

Thanks.

Albermarle

For the second part , you can open a personal pension/SIPP and contribute to that.
The pension provider will add basic rate tax relief, then at year end you inform HMRC of your total gross contribution ( including the added tax relief) If you are entitled to any additional higher rate tax relief, they will send you a rebate.

You only ever get 40% tax relief up to the amount of 40% tax you pay.

Dazed_and_C0nfused

cdbe11 said:

Having been stung last year with slipping into the 40% bracket my teacher wife is about 10k into it this year. We've made an application to buy "additional pension" in the TPS, payable via a lump sum - it's about 11k for 3 lots of £250. 

As we have to pay this in full I presume there's a mechanism for claiming tax relief? If so, what is this? And would the tax relief be repaid at 40% of all of it or only the bit that will have been taxed at 40% - if that makes sense.

Also, as we don't really want to put in in the TPS (just left it a bit last minute I think) but don't want to pay a load of tax, could we open a SIPP or something instead? I understand we can get 25% back tax free and drawdown the rest or whatever.

Age 52, retiring at around 55/6.

Thanks.

A lump sum contribution of £11k like that to the Teachers Pension scheme means you need to claim all the relief from HMRC.

It works like the Personal Allowance really, an extra £11k of her income wouldn't get taxed so on your figures it would probably be a mix of 40% (mainly) and 20% tax saving.   Ultimately though the precise saving depends on what other taxable income she has.

It is also painful sorting the refund with HMRC as they don't seem to understand people can make these gross contributions without getting any tax relief via a pay slip or pension company.

NB.  Only painful if she doesn't file a tax return, if she needs to file one for 2024-25 for some reason then it just goes on the return in the relevant box.

A SIPP is definitely an alternative.  She would have to pay £8,800 to get £11,000 in the pension fund.  And that £11,000 increases her basic rate band from £37,700 to £48,700.  Likely moving all her income into the basic rate band.  She still needs to tell HMRC but they have on online form now for this type of contribution (relief at source).

A SIPP can be more flexible.  But doesn't have the guarantee TPS has.  And yes, 25% of the SIPP would be taken as a TFLS (subject to the overall TFLS limit of ~£268k).

cdbe11

Thanks. We're on holiday so she can't access pay statements but she's on L9 (£60,644) plus something she calls an "honorarium" (£1,800). I think I've overestimated the amount that would be liable for higher rate tax as I didn't account for her current pension contributions - I've tried the HMRC take home calculator with a guesstimate of 11% pension contributions and it comes out at just over 2k at the higher rate (and the take home figure is very close to her actual) .

So probably better to open a small sipp say 3k - I presume we have time, with Hargreaves/Vanguard or similar. (I think there's a more advantageous way for us to top up the TPS in slower time, to do with McCloud redress)

She does have to do a tax return - we had a !!!!!! year last year - higher rate tax, she'd had my marriage tax allowance which she was no longer entitled to, and we lost entitlement to CB, HMRC checked on the phone and told us categorically that we didn't need to do a tax return (the letter saying she couldn't have my marriage allowance and we owe them £600 prompted this call), then sent another letter (not related to the phone call) saying she did need to do one so we did - had to pay them £800.