Moving into 40% tax bracket & pension relief

rdty21

Hi. 

Likely to be moving up a tax band shortly. Only ever paid basic rate before so just curious how this will work with my pension contributions.

Pension is deducted from wages and comes off my gross pay.

I understand that 40% tax is only due on the wages above the threshold. When it comes to pension tax relief does the same rule apply? Will I only receive 40% tax relief on contributions taken from my wages above the tax threshold, or will I receive 40% relief on all my contributions?

Thanks in advance.

Dazed_and_C0nfused

rdty21 said:

Hi. 

Likely to be moving up a tax band shortly. Only ever paid basic rate before so just curious how this will work with my pension contributions.

Pension is deducted from wages and comes off my gross pay.

I understand that 40% tax is only due on the wages above the threshold. When it comes to pension tax relief does the same rule apply? Will I only receive 40% tax relief on contributions taken from my wages above the tax threshold, or will I receive 40% relief on all my contributions?

Thanks in advance.

It sounds like you mean you are making net pay contributions.

This is is where no pension tax relief is added to your contribution but if you are earnings say £60k and contributing 10% your P60 will show your taxable pay as just £54k.  So you have avoided paying tax on £6k.

If it is net pay then you automatically receive the correct tax saving each pay day.  You might avoid paying 40% tax on part of your contribution and 20% tax on the rest.

rdty21

Yes that's exactly it...my mistake. Thanks for your reply.