End of Year Tax Question (Pensions contributions)

Lemon_Disco

Hi everyone!

MSE old timer here, but on a new account. I went away and had 3 children and am only just starting to screw my head back on in terms of finances 

Looking for some advice re. end of year. 

My situation is that I have 3 children and my husband is a stay at home dad and carer for his mum (so I am sole breadwinner). 

This year I realised I earned over 100k - this could significantly impact us in terms of losing free childcare hours in Scotland (as well as by losing some of my tax free allowance). 

My income was roughly as follows (figures are loose): 

£99k (after pension contributions) from PAYE employment 
£2k from interest on savings
£9k from property let
£15k from freelance work
-£15k of expenses on freelance work
(freelance work is not lucrative and is used to mostly boost my profile which leads to better paid PAYE employment)

So all in all I earned roughly £110k

I wanted to bring this to under £100k, so I did the following:

Paid 2k into my employee pension 
Paid 10k into a private pension

This brought my total earnings to £98750 (exact figure)

The question I've got though:

My employee pension has given me and extra £500 tax relief on my contribution of £2k, and my private pension has given me £2k tax relief of my contribution of £10k. 

I don't understand how I'm due that tax relief as I was using the contributions to bring my taxable income to under 100k - how can I be due tax relief on money that I haven't yet paid tax on. 

Please help - really concerned that I somehow haven't brought my income to under 100k as I'd hoped. 

Lemon_Disco

I should add:

Property let and freelance earnings are dealt with via Self Assessment. 

eskbanker

Lemon_Disco said:

I wanted to bring this to under £100k, so I did the following:

Paid 2k into my employee pension 
Paid 10k into a private pension

This brought my total earnings to £98750 (exact figure)

The question I've got though:

My employee pension has given me and extra £500 tax relief on my contribution of £2k, and my private pension has given me £2k tax relief of my contribution of £10k. 

I don't understand how I'm due that tax relief as I was using the contributions to bring my taxable income to under 100k - how can I be due tax relief on money that I haven't yet paid tax on.

But your payment into a private pension was presumably made with money that had already been taxed?  The situation with your workplace pension will be dependent on exactly how the payments were made, i.e. salary sacrifice, net pay or relief at source....

https://www.gov.uk/guidance/adjusted-net-income

Nomunnofun1

Lemon_Disco said:

Hi everyone!

MSE old timer here, but on a new account. I went away and had 3 children and am only just starting to screw my head back on in terms of finances 

Looking for some advice re. end of year. 

My situation is that I have 3 children and my husband is a stay at home dad and carer for his mum (so I am sole breadwinner). 

This year I realised I earned over 100k - this could significantly impact us in terms of losing free childcare hours in Scotland (as well as by losing some of my tax free allowance). 

My income was roughly as follows (figures are loose): 

£99k (after pension contributions) from PAYE employment 
£2k from interest on savings
£9k from property let
£15k from freelance work
-£15k of expenses on freelance work
(freelance work is not lucrative and is used to mostly boost my profile which leads to better paid PAYE employment)

So all in all I earned roughly £110k

I wanted to bring this to under £100k, so I did the following:

Paid 2k into my employee pension 
Paid 10k into a private pension

This brought my total earnings to £98750 (exact figure)

The question I've got though:

My employee pension has given me and extra £500 tax relief on my contribution of £2k, and my private pension has given me £2k tax relief of my contribution of £10k. 

I don't understand how I'm due that tax relief as I was using the contributions to bring my taxable income to under 100k - how can I be due tax relief on money that I haven't yet paid tax on. 

Please help - really concerned that I somehow haven't brought my income to under 100k as I'd hoped. 

Did you put £10k into a private pension or £10k subsequently grossed up to £12500 by HMRC?

Lemon_Disco

Thanks for getting back Nomunnofun1!

Yes, I guess I had already paid tax on the 2K that I paid into my Employee pension (so makes sense that that would get tax relief I guess?

Re. the private pension - I paid £10k out of my own bank account into the pension and it has been bumped up to £12500 by what my FA is describing as 'tax relief':

It looks like this on the statement:

Payment type: Personal Contribution
Frequency: Single
Net Amount: £10000
Gross Amount: £125000

However I haven't declared my self assessment earnings this year (as the year isn't yet finished) so how can I have tax relief on earnings that I haven't declared? Does that make sense?

My accountant is on the brink of his 2nd retirement - he says that the action I've taken will bring my income for 24-25 year down to under £100k - but he has sone family things going on and has (understandably) checked out a little, so just want to double check. 

Thanks again

(Removed by Forum Team)

Dazed_and_C0nfused

Lemon_Disco said:

Thanks for getting back Nomunnofun1!

Yes, I guess I had already paid tax on the 2K that I paid into my Employee pension (so makes sense that that would get tax relief I guess?

Re. the private pension - I paid £10k out of my own bank account into the pension and it has been bumped up to £12500 by what my FA is describing as 'tax relief':

It looks like this on the statement:

Payment type: Personal Contribution
Frequency: Single
Net Amount: £10000
Gross Amount: £125000

However I haven't declared my self assessment earnings this year (as the year isn't yet finished) so how can I have tax relief on earnings that I haven't declared? Does that make sense?

My accountant is on the brink of his 2nd retirement - he says that the action I've taken will bring my income for 24-25 year down to under £100k - but he has sone family things going on and has (understandably) checked out a little, so just want to double check. 

Thanks again

(Removed by Forum Team)

Your accountant is wrong.  Or hasn't explained it fully.

Relief at source pension contributions (where you get basic rate relief added to your pension fund) do not reduce your taxable income.

But they do reduce your adjusted net income and it's adjusted net income which determines your Personal Allowance.

Lemon_Disco

Thanks for getting back Nomunnofun1!

Yes, I guess I had already paid tax on the 2K that I paid into my Employee pension (so makes sense that that would get tax relief I guess?

Re. the private pension - I paid £10k out of my own bank account into the pension and it has been bumped up to £12500 by what my FA is describing as 'tax relief':

It looks like this on the statement:

Payment type: Personal Contribution
Frequency: Single
Net Amount: £10000
Gross Amount: £125000

However I haven't declared my self assessment earnings this year (as the year isn't yet finished) so how can I have tax relief on earnings that I haven't declared? Does that make sense?

My accountant is on the brink of his 2nd retirement - he says that the action I've taken will bring my income for 24-25 year down to under £100k - but he has sone family things going on and has (understandably) checked out a little, so just want to double check. 

Thanks again

Lemon_Disco

Thanks @Dazed_and_C0nfused - that's really helpful.

Do my pension contributions (what I paid before the tax relief was added) reduce my taxable income?

Lemon_Disco

Thank you for the link @eskbanker also - very useful.