Paying private pension @ 40% tax.

M11k

Hi,

And thanks for any help. I've read all over that if (for ease) you earn £1000 over the £50k tax band, and put it in a private pension you get ALL the tax back, some added to the pension, some via tax return. But this doesn't add up to all.
Eg.
I earn £1000 in higher rate 40% 
Tax £400,
Leaves me £600.

I put the £600 in to the pension, they add 25% £150 automatically.

I clam tax back 20% £200.

That adds up to £350 tax back not the £400 that was taken.
Can anyone explain how this adds up to all please. I'm confused.

Thanks again

DRS1

You are not contributing enough.  It should be £800 to get a gross £1000 contribution.  With the higher rate reduction (ie more taxed at 20% instead of 40%) that costs you a net £600.

dunstonh

I put the £600 in to the pension, they add 25% £150 automatically.

You are mixing up net and gross.

Pension contributions are gross.   You receive tax relief which is a reduction, not an addition.

If you contribute £1000 to the pension, you pay £800 net of basic rate relief and get a further £200 via self-assessment.

Triumph13

In other words, you can't just put the £600 you got paid in, you also need to 'borrow' £200 from yourself and put that in as well.  HMRC then repays that £200 to you (via your tax return) and another £200 to your pension.

There is no practical way for pension schemes to know who pays what rate of tax, so you always have to put 80% of the desired gross in and sort out the difference with HMRC yourself.

M11k

This may take my head some time to compute, I knew I was making a mistake somewhere, thanks for the very helpful prompt replies 😁