Tax relief on SIPP contributions

Dazed_and_C0nfused

talexuser said:

Nomunnofun1 , I'm sorry if I'm not understanding, I'm getting older and this stuff is new to me. Your explanation of the relief from the 40% band is clear, as is the calculation of what is needed to add to the allowance (the 69).

There is no 69 added to the tax code notified, they have instead subtracted 138, and they know the exact income. Does this not mean the allowance has gone down and you pay more tax? What is the process of informing HMRC of the additional relief please, I'm on self assesment? 

If your tax code is 406L them you have almost certainly got too high a tax code and could well underpay tax.

To fully understand this you need to confirm how many PAYE sources of income you have and the tax codes allocated to each one.

And your estimate of the amount you expect to see on your P60(s) for 2025-26 in due course.

Extra tax code allowances of £3462 for the pension contribution is unlikely to be correct given you have already received basic rate relief when making your (net) contribution.

talexuser

Thanks for that, The tax code only applies to the personal pension, the state pension is gross effectively out of personal allowance with £607 of personal allowance left over, and the rest is savings interest and dividends declared at the end of the tax year in self assessment because of the dividends. 

So HMRC added that £607 left over to the 20% band of 37700 to get 38307.

Now personal pension is 38445, they subtracted the 38307 to say £138 in the 40% band, and subtracted the 138 from the 3600 Sipp relief to get 3462 to add in the tax code instead of 3600.

This seems a peculiar way of calculating it, since income (not savings or dividends) is actually below my 40% level, 12750 personal allowance, 37700 20% band and 3600 gross pension contribution, equals 53870.
Income is 11973 state pension and 38445 private pension, is 50418, so I'm only in the 40% band for future savings interest as yet undeclared (dividends on top have their own rates).

I suppose if I tax return 3600 as QrizB advises, then it all works out in the end, but HMRC seem to be calculating to collect as much as possible early and I wonder if I can challenge that? 

Dazed_and_C0nfused

talexuser said:

Thanks for that, The tax code only applies to the personal pension, the state pension is gross effectively out of personal allowance with £607 of personal allowance left over, and the rest is savings interest and dividends declared at the end of the tax year in self assessment because of the dividends. 

So HMRC added that £607 left over to the 20% band of 37700 to get 38307.

Now personal pension is 38445, they subtracted the 38307 to say £138 in the 40% band, and subtracted the 138 from the 3600 Sipp relief to get 3462 to add in the tax code instead of 3600.

This seems a peculiar way of calculating it, since income (not savings or dividends) is actually below my 40% level, 12750 personal allowance, 37700 20% band and 3600 gross pension contribution, equals 53870.
Income is 11973 state pension and 38445 private pension, is 50418, so I'm only in the 40% band for future savings interest as yet undeclared (dividends on top have their own rates).

I suppose if I tax return 3600 as QrizB advises, then it all works out in the end, but HMRC seem to be calculating to collect as much as possible early and I wonder if I can challenge that? 

That isn't how higher rate relief is given in a tax code though.  £3,462 will be giving you extra relief of ~£700-£1,400, way more than seems to be due.

But unless you can provide the actual details then it's difficult to explain where things have gone wrong (or why they are correct inHMRC's eyes).

QrizB

talexuser said:

... HMRC seem to be calculating to collect as much as possible early and I wonder if I can challenge that? 

It's entirely your decision on how much time and effort you want to invest over the prospect of missing out on ~£1 a week until you submit your 25/26 self assessment.

talexuser said:

I suppose if I tax return 3600 as QrizB advises,

You should've been doing this every year, have you missed that box until now?

talexuser

Dazed_and_C0nfused said: 

That isn't how higher rate relief is given in a tax code though.  £3,462 will be giving you extra relief of ~£700-£1,400, way more than seems to be due.

This is where my brain fart occurs. When the allowance was 3600, the HMRC page said the total tax free amount on the PAYE part was £4207. They changed it to 3462 and the total tax free amount went down to 4069. so paying a little more each month, and I can't get round the inverse way of thinking for tax codes to understand how this works after the 40% threshold.

talexuser

QrizB said:

You should've been doing this every year, have you missed that box until now?

No, filled in every year with 3600.

Dazed_and_C0nfused

talexuser said:

Dazed_and_C0nfused said: 

That isn't how higher rate relief is given in a tax code though.  £3,462 will be giving you extra relief of ~£700-£1,400, way more than seems to be due.

This is where my brain fart occurs. When the allowance was 3600, the HMRC page said the total tax free amount on the PAYE part was £4207. They changed it to 3462 and the total tax free amount went down to 4069. so paying a little more each month, and I can't get round the inverse way of thinking for tax codes to understand how this works after the 40% threshold.

If you want a proper explanation why don't you just provide the details of your tax code?

The code itself, the breakdown of how it was arrived at and the estimated income of the job/pension the code is going to be used against.

That really is the only way you will get to fully understand this.

talexuser

From first post
HMRC has taken the 12570 personal allowance and subtracted the 11963 state pension for a tax allowance of £607 left.
They then took the 37700 20% tax limit, added the 607 for £38307 in 20% band.
My private pension gross is just above the 20% limit for the first time this year, namely £38445.
They subtract the 38307 from new gross of 38445 to get £138 in the 40% band.
So instead of the normal 3600 tax relief contributing to my tax code, they have subtracted 138 from 3600 for 3462.

Then 12570 personal plus 3462 Sipp is 16032, minus state pension 11963 is 4069, tax code 406L. 

Dazed_and_C0nfused

talexuser said:

From first post
HMRC has taken the 12570 personal allowance and subtracted the 11963 state pension for a tax allowance of £607 left.
They then took the 37700 20% tax limit, added the 607 for £38307 in 20% band.
My private pension gross is just above the 20% limit for the first time this year, namely £38445.
They subtract the 38307 from new gross of 38445 to get £138 in the 40% band.
So instead of the normal 3600 tax relief contributing to my tax code, they have subtracted 138 from 3600 for 3462.

Then 12570 personal plus 3462 Sipp is 16032, minus state pension 11963 is 4069, tax code 406L. 

So I think you will owe £692.40 if that code is used with pension income of £50,408 (38,445 + 11963).

Can you confirm what the tax code allowance of 3463 is called?

And are you 100% certain that HMRC have used £38,445 as the estimate of your (non State) pension income?

Does your Personal Tax Account show anything else that might be relevant?

talexuser

Thanks, the 3,462 is called personal pension payments (was always 3,600 in the past) and is the total additions to personal allowance of 12,570. 

Total deductions is state pension of 11,963.

Yes 38,445 was added end of  April for correct figure for private pension this year.

The rest is non coded income of savings interest and dividends which is a guess from last year and takes me into 40% territory, and rest of the tax is paid by self assessment when entered at end of the tax year.

I just don't understand the 3462 because my tax workout spreadsheet does not show any 40% tax owing on INCOME, ie 38,445 plus 11,963 = 50,408 when the 20% band should be 12,570 plus 37,700 20% band plus 3,600 = 53,870 adjusted net income in 20% band. I pay 40% on the higher end of savings interest and then dividends.