Adjusted Net Income with Relief at Source Contributions

KRB2725

How do I calculate my adjusted net income please?

I asked my company to make a £375 contribution per month to my pension. My payslip shows £300, which figure do I use for calculating my ANI?

My total annual gross income takes me into the 40% tax bracket and, at this level of contribution, the whole contribution amount sits in that bracket, do I need to complete a self assessment to reclaim additional tax? Would this be 20% of my total contribution amount?

I really don't understand pensions very well but am trying to learn.

DRS1

With relief at source contributions (employee contributions) you contribute an amount net of basic rate tax relief.  The pension scheme claims back the 20% tax (which confusingly is 25% of the net contribution).  So in your case the gross contribution to the pension scheme including the 20% tax relief is £375 but the net payment taken out of your wages is only £300.  When you tell HMRC about the contribution to claim the higher rate relief you put in the £375 figure.

How much higher rate relief you get depends on your income - if as you say you are in higher rate territory even after the contribution then yes you get the benefit of another 20% relief.  It actually works as increasing the amount of your income subject to basic rate tax.  So the higher rate threshold goes up from say £37700 to say £42200.

You don't need to do a self assessment.  There is an online form somewhere..

KRB2725

Thank you.  So when I calculate my API (I am just above the 60K child benefit threshold and am trying to remain under it) I reduce my income by £375 not £300?

DRS1

Claim tax relief on your private pension payments - GOV.UK

This is the page for claiming online.

To be honest I know nothing about child benefit and hopefully someone who does will correct me if I am wrong but I think you should use the £375 figure not the £300 for that as well.

KRB2725

Thank you that's very useful.

Dazed_and_C0nfused

KRB2725 said:

Thank you.  So when I calculate my API (I am just above the 60K child benefit threshold and am trying to remain under it) I reduce my income by £375 not £300?

If you mean ANI then yes, the gross contribution reduces that, so by £375.

But it doesn't reduce your taxable income.

Don't forget the threshold is really £60,200 not £60,000. 

Lorian

Does your employer offer a salary sacrifice option?

KRB2725

Lorian said:

Does your employer offer a salary sacrifice option?

Unfortunately not

KRB2725

Dazed_and_C0nfused said:

KRB2725 said:

Thank you.  So when I calculate my API (I am just above the 60K child benefit threshold and am trying to remain under it) I reduce my income by £375 not £300?

If you mean ANI then yes, the gross contribution reduces that, so by £375.

But it doesn't reduce your taxable income.

Don't forget the threshold is really £60,200 not £60,000. 

I'm really sorry if I sound stupid (and yes I did mean ANI), but if it doesn't reduce my taxable income, will I still be considered over the CB threshold if I have a total income of £63K?

I've been recently widowed and am in receipt of a pension payment from my late husband. With it being classed as my income, I am already paying 40% tax on it and don't want to lose any more as it is a relatively small payment but a help nonetheless.

Dazed_and_C0nfused

KRB2725 said:

Dazed_and_C0nfused said:

KRB2725 said:

Thank you.  So when I calculate my API (I am just above the 60K child benefit threshold and am trying to remain under it) I reduce my income by £375 not £300?

If you mean ANI then yes, the gross contribution reduces that, so by £375.

But it doesn't reduce your taxable income.

Don't forget the threshold is really £60,200 not £60,000. 

I'm really sorry if I sound stupid (and yes I did mean ANI), but if it doesn't reduce my taxable income, will I still be considered over the CB threshold if I have a total income of £63K?

I've been recently widowed and am in receipt of a pension payment from my late husband. With it being classed as my income, I am already paying 40% tax on it and don't want to lose any more as it is a relatively small payment but a help nonetheless.

High Income Child Benefit Charge is not based on your taxable income.

It is your adjusted net income (ANI) that is what matters.

So you could have total taxable income of say £100,000 and if you make (gross) relief at source pension contributions of £40,000 your adjusted net income will only be £60,000.

But you will still have to pay income tax on £100,000 as that is your taxable income.

Although they don't reduce your taxable income relief at source contributions will increase your basic rate band so you would pay more tax at 20% and less at 40%.

KRB2725

Thank you for your help everyone, it's all a bit clearer now.