Put £20k in additional nhs pension or SIPP?

PoGee

Lowtrawler said:

QrizB said:

Lowtrawler said:

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax 

That's an unconventional reading of the OPs statement:

PoGee said:

If I buy £1250 additional nhs pension, it's a lump sum of £20k.

If he was being asked for £16k, he'd have said so?

Maybe the OP can clarify?

The NHS Additional Pension payments are always quoted gross. Most people choose to make the payment over time rather than as a lump sum but both options exist. It is why I asked the poster if they were sure they would have enough taxable income this year to make the £20k lump sum payment and obtain tax relief.

On speaking to many people in the NHS, most don't understand they get tax relief on the Additional Pension payments and so end up making a poorly informed choice.

Thanks for replies. I put into the calculator '£1250' and the result was - lump sum cost £20k. I'm not sure what you mean by - making sure I have enough taxable income to make the £20k lump sum and obtain tax relief.

I'm part time with my pro rata salary being around £28k, rental income 1st rental £10k, 2nd rental £5k - all before tax. I've sold the 2nd rental so have cash sitting in a low interest savings account. I get £1k in interest from cash saved previously + share dividends, so conscious of the new cash from the sold rental pushing me over the £1k interest limit.

Can you explain what 'enough taxable income means'? This is going over my head a wee bit. 

Dazed_and_C0nfused

PoGee said:

Lowtrawler said:

QrizB said:

Lowtrawler said:

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax 

That's an unconventional reading of the OPs statement:

PoGee said:

If I buy £1250 additional nhs pension, it's a lump sum of £20k.

If he was being asked for £16k, he'd have said so?

Maybe the OP can clarify?

The NHS Additional Pension payments are always quoted gross. Most people choose to make the payment over time rather than as a lump sum but both options exist. It is why I asked the poster if they were sure they would have enough taxable income this year to make the £20k lump sum payment and obtain tax relief.

On speaking to many people in the NHS, most don't understand they get tax relief on the Additional Pension payments and so end up making a poorly informed choice.

Thanks for replies. I put into the calculator '£1250' and the result was - lump sum cost £20k. I'm not sure what you mean by - making sure I have enough taxable income to make the £20k lump sum and obtain tax relief.

I'm part time with my pro rata salary being around £28k, rental income 1st rental £10k, 2nd rental £5k - all before tax. I've sold the 2nd rental so have cash sitting in a low interest savings account. I get £1k in interest from cash saved previously + share dividends, so conscious of the new cash from the sold rental pushing me over the £1k interest limit.

Can you explain what 'enough taxable income means'? This is going over my head a wee bit. 

When you make a lump sum payment like the one you are referring to you don't get any tax relief at the time you make the payment, you just give the NHS say £20k and have to claim any tax relief from HMRC.

But there is no automatic tax relief of any sort.

There was a poster a while back had paid say £10k, as a lump sum, to buy extra pension, but only earned say £13k and paid a tiny amount of tax.  So they only got a tiny refund, of all the tax they had paid.  When they were expecting £2k.

You can have a play around with your Self Assessment return to get an idea of how it would benefit you (tax wise).  Just remember to discard any fake entries before submitting it to HMRC!

But with your level of taxable income I don't think you have any major concerns.  Although rental income is of no relevance really, it's profit which matters for tax purposes.

PoGee

To make sure I understand, if I were to go ahead - I pay the lump sum before my next birthday which is end September, to the nhs pension provider. I'm due to do a tax return which I generally do in October (2024-April 2025) this October. Do I claim the tax relief in this October's self assessment tax return or next year's one? If the rental income profit was £10500, would that affect anything?

Dazed_and_C0nfused

PoGee said:

To make sure I understand, if I were to go ahead - I pay the lump sum before my next birthday which is end September, to the nhs pension provider. I'm due to do a tax return which I generally do in October (2024-April 2025) this October. Do I claim the tax relief in this October's self assessment tax return or next year's one? If the rental income profit was £10500, would that affect anything?

How could you claim relief against 2024-25 for a pension contribution paid in 2025-26 🤔

Well I guess you can enter pretty much anything on a Self Assessment return.  But expect an investigation from HMRC if you try that on!

The more taxable income the more your tax liability will be so the stronger chance you will get a tax saving on the whole contributions i.e. paying £20k to the NHS might only cost you £16k after factoring in the tax saving you will make on your 2025-26 tax return.

LHW99

I'm part time with my pro rata salary being around £28k

As I understand it, it's your actual gross income that counts, but rental income isn't regarded as "income" for punsion purposes.

And presumably the amount you could add also includes any existing contributions.

Lowtrawler

PoGee said:

Lowtrawler said:

QrizB said:

Lowtrawler said:

You're forgetting that the £20k being paid into the NHS scheme will get tax relief. Assuming they will get tax relief at 20%, the £20k cost is only £16k after tax 

That's an unconventional reading of the OPs statement:

PoGee said:

If I buy £1250 additional nhs pension, it's a lump sum of £20k.

If he was being asked for £16k, he'd have said so?

Maybe the OP can clarify?

The NHS Additional Pension payments are always quoted gross. Most people choose to make the payment over time rather than as a lump sum but both options exist. It is why I asked the poster if they were sure they would have enough taxable income this year to make the £20k lump sum payment and obtain tax relief.

On speaking to many people in the NHS, most don't understand they get tax relief on the Additional Pension payments and so end up making a poorly informed choice.

Thanks for replies. I put into the calculator '£1250' and the result was - lump sum cost £20k. I'm not sure what you mean by - making sure I have enough taxable income to make the £20k lump sum and obtain tax relief.

I'm part time with my pro rata salary being around £28k, rental income 1st rental £10k, 2nd rental £5k - all before tax. I've sold the 2nd rental so have cash sitting in a low interest savings account. I get £1k in interest from cash saved previously + share dividends, so conscious of the new cash from the sold rental pushing me over the £1k interest limit.

Can you explain what 'enough taxable income means'? This is going over my head a wee bit. 

As LHW99 says, Rental Income will not enable you to get tax relief on the pension payment and so it is only your NHS Salary that you should consider.

On a salary of £28k, you are probably contributing around £2k into the pension scheme already and, with your personal allowance of £12,570, you will only get tax relief on £28k less £2k less £12,570 = £13,430
You will need to make adjustment to these numbers based on what you know you are paying into the pension scheme and your actual personal allowance.

What this means is you do not have enough taxable income to get full tax relief on making a £20k lump sum payment. Based on my rough numbers above, you would only get tax relief on £13,430 of the payment. Paying into the NHS additional pension only makes sense if you can get the full tax relief.

What you can consider doing is to make the payment by monthly salary deduction over 2 years. This way, you will get automatic tax relief through PAYE. In essence, you would make a £10k payment each year (£833.33 per month) but it would only cost you £8k (£666.67 per month) as you would get £2k tax relief through PAYE.

Another option is to pay a lump sum of £12k this year (subject to you confirming you have £12k of taxed income per my calc above) and make a new application next year to pay in the remaining £8k. That would mean changing this years calc to add £750 of Additional Pension and doing £500 next year. You would then claim back £2,400 tax on your 2025/26 tax return and £1,600 on your 2026/27 return.

LHW99

Also, do you mean your part-time salary is £28k, or your annual pro-rata salary? As Lowtrawler says it's your actual gross salary which you receive that counts.

PoGee

LHW99 said:

Also, do you mean your part-time salary is £28k, or your annual pro-rata salary? As Lowtrawler says it's your actual gross salary which you receive that counts.

Full time is around £47k and I work 3 days a week so gross pay is £28k

PoGee

The government want us to save for our retirement but make pensions difficult to understand. I actually find being a landlord as far more easy. As a landlord, you can get straightforward and clear info online from government websites. It's a shame HMRC did away with their online forums.

LHW99

PoGee said:

LHW99 said:

Also, do you mean your part-time salary is £28k, or your annual pro-rata salary? As Lowtrawler says it's your actual gross salary which you receive that counts.

Full time is around £47k and I work 3 days a week so gross pay is £28k

So £28k is the number that matters. You need to take away the amount already being paid into the pension, and that is the gross amount you could pay in from savings. AFAIK you don't have to deduct the personal allowance.