Avoiding HRT by pension contribution - & for last year?

chipfire

I paid 40% tax for the first time last tax year.  

 

HRT of £1079 mainly due to higher interest rates on savings and an unexpected bonus which pushed total income over £50k including salary (less pension sacrifice) and DB pension income.  I expect a similar scenario this year.

  

So I’m thinking of making an additional payment of say £2697 to my pension on top of existing salary sacrifice (within the £60k limit). (Calculated as 40% of £2697 = £1079) 

Pension company would then claim 20% from HMRC  then I could somehow apply on this year’s tax return for the additional 20%.

Is there anyway to “recoup” the 40% tax already paid in FY23/24? Perhaps by further contributions or would they be limited to the amount of HRT paid in current year?  Only attracting 20% ?

Dazed_and_C0nfused

chipfire said:

I paid 40% tax for the first time last tax year.  

 

HRT of £1079 mainly due to higher interest rates on savings and an unexpected bonus which pushed total income over £50k including salary (less pension sacrifice) and DB pension income.  I expect a similar scenario this year.

  

So I’m thinking of making an additional payment of say £2697 to my pension on top of existing salary sacrifice (within the £60k limit). (Calculated as 40% of £2697 = £1079) 

Pension company would then claim 20% from HMRC  then I could somehow apply on this year’s tax return for the additional 20%.

Is there anyway to “recoup” the 40% tax already paid in FY23/24? Perhaps by further contributions or would they be limited to the amount of HRT paid in current year?  Only attracting 20% ?

You can never get tax relief for any year except the tax year the contribution is paid in.

So you have well and truly missed the boat for 2023-24.  And the clock is ticking for 2024-25.

Also, why the preference for personal contributions rather than giving up more salary?  There may be a perfectly valid reason but it isn't usually the most tax (NI) efficient option for getting money into your pension.

chipfire

Understood, thankyou.   Reason for personal contribution is that the company will only accept salary sacrifice down to minimum wage and I’m there already.     I suppose if I did make greater contributions I can still get the 20% so kinda recoup the total that what went out at as HRT last year.  

Dazed_and_C0nfused

chipfire said:

Understood, thankyou.   Reason for personal contribution is that the company will only accept salary sacrifice down to minimum wage and I’m there already.     I suppose if I did make greater contributions I can still get the 20% so kinda recoup the total that what went out at as HRT last year.  

If you make a personal (relief at source) contribution then the pension company will add 25% courtesy of HMRC.

So £100 from you becomes £125 within the pension.

If you are a higher rate payer (or intermediate rate if Scottish resident) then that increases your basic rate band by £125, meaning more income can be taxed at 20% and less at 21% or 40%.  

You do not get a guaranteed extra 1% or 20% though, additional relief depends on your overall tax situation.  You might contribute £5,000 gross but only be liable to higher rate tax on say £2,000.

chipfire

So it turns out that I am not able to make a personal contribution due to it being a Mercer Money fund administered by SW only accepting via employer.  I’ve maxed that out and receiving only minimum wage from them.

so I’m now trying to open a new SIPP with IG  as I have other investments with.

Question now is does my share purchase scheme at work (labelled as a SIPP) into which I pay £1800 /year for company shares count to my overall pension contributions?

Limit is £60k.  Work pension contribution (my salary sacrifice + Company’s) is £44k so can I add £16k to new SIPP or is it only £14.2k allowing for share scheme?

Sarahspangles

chipfire said:

So it turns out that I am not able to make a personal contribution due to it being a Mercer Money fund administered by SW only accepting via employer.  I’ve maxed that out and receiving only minimum wage from them.

so I’m now trying to open a new SIPP with IG  as I have other investments with.

Question now is does my share purchase scheme at work (labelled as a SIPP) into which I pay £1800 /year for company shares count to my overall pension contributions?

Limit is £60k.  Work pension contribution (my salary sacrifice + Company’s) is £44k so can I add £16k to new SIPP or is it only £14.2k allowing for share scheme?

Are you sure it’s a SIPP and not a SIP. SIPs are a different animal.

Cobbler_tone

chipfire said:

So it turns out that I am not able to make a personal contribution due to it being a Mercer Money fund administered by SW only accepting via employer.  I’ve maxed that out and receiving only minimum wage from them.

so I’m now trying to open a new SIPP with IG  as I have other investments with.

Question now is does my share purchase scheme at work (labelled as a SIPP) into which I pay £1800 /year for company shares count to my overall pension contributions?

Limit is £60k.  Work pension contribution (my salary sacrifice + Company’s) is £44k so can I add £16k to new SIPP or is it only £14.2k allowing for share scheme?

If it is £1,800 a year it will be a share scheme (as alluded) and not a pension. The good news is that it will be via SS and therefore be coming off of your taxable income. It is another reason however why they won't let you up your pension contributions. It is not classed as a pension contribution but will be dragging you down to NMW. The same if you had any other taxable benefits such as healthcare.

chipfire

Yeah it’s a SIP!  Thanks

Cobbler_tone

If you are down to NMW, your underlying issue is the income from your DB pension taken whilst still working. I've parked mine and contributing to 30%+ to stay under the 40% threshold, with the option to go up to 62%. If I accessed my DB I'd be in the same boat.

Sarahspangles

chipfire said:

So it turns out that I am not able to make a personal contribution due to it being a Mercer Money fund administered by SW only accepting via employer.  I’ve maxed that out and receiving only minimum wage from them.

so I’m now trying to open a new SIPP with IG  as I have other investments with.

Question now is does my share purchase scheme at work (labelled as a SIPP) into which I pay £1800 /year for company shares count to my overall pension contributions?

Limit is £60k.  Work pension contribution (my salary sacrifice + Company’s) is £44k so can I add £16k to new SIPP or is it only £14.2k allowing for share scheme?

Your limit isn’t going to be £60k, it’s your actual salary after the salary sacrifice. There are two limits - the first is your relevant UK earnings (your NMW salary) and the second is the Annual Allowance.

Your SIPP contributions are constrained by the first limit. You can contribute up to that limit as a gross amount. That means you contribute 80% and your SIPP provider claims the 20% tax relief from HMRC.

Your original object was to avoid paying higher rate tax, but what you’re now doing is maximising tax relief. That’s a good idea in the short term but don’t forget to check whether your SIPP + DB pension + State Pension will leave you paying HRT at some point. Your DB pension presumably means you won’t have much if any personal allowance to set against SIPP drawings before State Pension age.