Pension Help

Mission193

Good Afternoon all.

I need some advice if possible. 

I have a workplace pension and i currently salary sacrifice 20% of my wages into the pension.  I currently have £50k in savings and i would like to transfer this to my workplace pension.

I am being told there is a tax rebate on any contributions.  Could someone explain how it works and how i would claim for the tax rebate. (not to sure if rebate is the correct word)

If it helps my salary is £105k 

I would appreciate the help as google is throwing me around.

Thank you in advance

molerat

If you pay into a SIPP the pension provider will add 25%, the equivalent to basic rate tax on the gross amount, and you would need to reclaim any higher rate tax paid on that gross amount.  It may be beneficial if you could increase your sal sac rate or make an ad hoc sal sac payment into the pension and make up your income from the savings as that would also give you NI relief and automatically take care of the higher rate tax problem.

Albermarle

Normally if you make a lump sum contribution to a DC pension, the pension provider adds 25% basic rate tax relief. You then at some point inform HMRC if you think you are due some higher rate tax relief.
Couple of points in your case.
1) Is the £105 K before or after the salary sacrifice?
2) You would need to check in advance that your workplace pension can accept lump sums in this way, as they normally are set up only to get employer contributions . I not you would need to set up your own personal pension for them.

Mission193

1)£105k is before any salary sacrifice.
2)  Yes can i make lump sums. 

Thank you for your help

Albermarle

Mission193 said:

1)£105k is before any salary sacrifice.
2)  Yes can i make lump sums. 

Thank you for your help

So your taxable income is actually around £84K. 
This is the maximum you can add gross to a pension and still be eligible for tax relief.
In practice it means you can add £67K and the basic rate tax relief added by the provider will make it £84K ( approx) 

However separately there is a limit on how much can be added to a pension in total of £60K . This includes everything that goes into it, including any contribution from your employer, your salary sacrifice amount, your lump sum + basic rate tax relief on that.

However if you have not added £60K in the past years, you can carry some of that allowance forward, if that was of interest.

As said at some point you need to inform HMRC of your gross lump sum payment ( including the added tax relief). This can be via a self assessment return or directly. When they calculate your tax, they will take this into account, and pay you any rebate owed as you are a higher rate taxpayer, to make sure you get the full 40% tax relief.
Be careful as HMRC will them assume you will make the same lump sum payment next year and adjust your tax code, so you pay less tax during the year, instead of getting a rebate. If you do not add any lump sum in the next tax year, or a smaller amount, you will not pay enough tax and will owe them . However you can easily adjust amounts in advance via your personal tax account.

ali_bear

Is that the maximum you are allowed to salary sacrifice under your employers scheme? 

Instead of making a lump sum contribution, why not draw on the savings each month while making the maximum contributions possible through SS? Some say it is better to spread out the pension investment instead of making a lump sum contribution - imagine if you paid in a big sum and the markets took a dump the very next day. 

Isthisforreal99

If you do go ahead I would suggest spreading it over 2 tax years to maximise higher rate relief as you don't need £50k to get under the higher rate threshold this year

Triumph13

I would definitely be looking to do it over three years.  Assuming your employer doesn't share their NI savings, you are looking to get 42% relief via sal sac.  £50k net is therefore £86k gross into your pension.  You only have around £34k pa of income currently taxed at the higher rate, so it will take you three tax years to get it all in at that rate of relief.

Basically you want to salary sacrifice down to the level that will make your taxable income £50,270 in each tax year, then 'pay yourself' each month from the £50k savings to bring your income back to what it was.   Simples.

DRS1

Is the £50k the ONLY savings you have or is it just the bit of your savings you want to put in a pension?

If it is all the savings you have then you should think carefully before putting it in a pension where you may not be able to get at it if you need it.

Mission193

DRS1 said:

Is the £50k the ONLY savings you have or is it just the bit of your savings you want to put in a pension?

If it is all the savings you have then you should think carefully before putting it in a pension where you may not be able to get at it if you need it.

Thank you, i didnt think of this

I appreciate all the responses