Paying lump sum into pension

zutman

sorry I can t get my hand round it, 

I want to pay 30k lump sum into my pension, im 58 and earn around 60k and pay 15% into my pension 3% the company puts in, its stuck in an isa earning nothing so what tax relief will I get ? I don't understand the 40% bit how do I get it, and is it worth doing ? 

Thanks 

DRS1

Do you have other income?
With a salary of £60k and employee contributions (I assume) of 15% there won't be much 40% tax band left.

zutman

all my pension is paid after tax so its doesn't help standard life claim the 20% bit and I claim the other, the last time I claimed was three years ago over the phone so I need to do that as well 

Thanks

DRS1

You may want to check with SL how they will deal with a lump sum contribution you pay them.

What you describe is the relief at source contribution and is common for contributions which come out of your salary.  But sometimes you find that one off lump sums not paid out of salary get treated differently - ie SL don't claim the 20%.  If that happens it can get very confusing with HMRC when you try to claim tax relief because they will assume SL will have claimed the 20%.

zutman

ok cheers I will ask 

zutman

says on web site I can pop a lump sum in up to 60k less what ive put in this year 

Marcon

DRS1 said:

You may want to check with SL how they will deal with a lump sum contribution you pay them.

What you describe is the relief at source contribution and is common for contributions which come out of your salary.  But sometimes you find that one off lump sums not paid out of salary get treated differently - ie SL don't claim the 20%.  If that happens it can get very confusing with HMRC when you try to claim tax relief because they will assume SL will have claimed the 20%.

No - if it's a relief at source scheme, the provider claims 20% on all contributions made by the member, whether those contributions are deducted from their salary or paid personally from other funds.

The confusion sets in if the pension scheme is a 'net pay' scheme - a that's a confusing bit of terminology if ever there was one! In that case, the member needs to claim tax relief for personal contributions which are not deducted from gross pay.

Employer contributions (a term which includes any an employee makes via salary sacrifice) are always paid gross,

Marcon

zutman said:

says on web site I can pop a lump sum in up to 60k less what ive put in this year 

Work out how much has already been contributed including your own contributions + tax relief at 20%, plus the whole of your employers contributions in this tax year: 'the amount so far'.

Deduct 'the amount so far' from £60K. That's the maximum amount you could contribute in gross terms, so you'd need to pay in 80% of that amount and the provider would add basic rate tax to bring you up to the maximum.

Unless of course you have scope for carry forward, but possibly you don't want even more complexity!

DRS1

zutman said:

says on web site I can pop a lump sum in up to 60k less what ive put in this year 

I may be wrong because I don't know what you are looking at but I think the £60k figure is the annual allowance.  It takes into account employer contributions as well as employee contributions (assuming we are talking about a defined contribution pension)

That is a separate limit from the tax relief limit on your contributions (which is your taxable earnings - confusingly for you also £60k).  For that limit you only look at what you have contributed and ignore employer contributions.

DRS1

Marcon said:

DRS1 said:

You may want to check with SL how they will deal with a lump sum contribution you pay them.

What you describe is the relief at source contribution and is common for contributions which come out of your salary.  But sometimes you find that one off lump sums not paid out of salary get treated differently - ie SL don't claim the 20%.  If that happens it can get very confusing with HMRC when you try to claim tax relief because they will assume SL will have claimed the 20%.

No - if it's a relief at source scheme, the provider claims 20% on all contributions made by the member, whether those contributions are deducted from their salary or paid personally from other funds.

The confusion sets in if the pension scheme is a 'net pay' scheme - a that's a confusing bit of terminology if ever there was one! In that case, the member needs to claim tax relief for personal contributions which are not deducted from gross pay.

Employer contributions (a term which includes any an employee makes via salary sacrifice) are always paid gross,

I am sure I have seen at least one thread on here where someone contributed a lump sum and no 20% was claimed by the pension even though other contributions had the 20% claimed.  Not sure how I would find it though.  But if you are right then it should be simple enough for the OP.  Assuming they want to contribute such a large amount when they will get little higher rate relief.

af1963

You can get tax relief on pension contribs, but that tax relief will only be at 40% for the amount of income that you pay 40% tax on.  So if you earn 60k and already contribute 9K (gross), that 9K will get relief at 40% because you pay higher rate tax on more than 9K. So you can claim back the extra 20% that the provider doesn't claim.

But if you pay in another 30K (net) which becomes £37.5k gross after 20% basic rate tax relief is added, you won't be able to claim the *extra* relief ( to make it up to 40%) on the whole amount - just on the bit that still exceeds the remainder of your 40% taxed income.  If you're not in Scotland, that will just be a few hundred pounds. In Scotland, about £10k.

Still worth considering, since even with "just" 20% tax relief,  every £80 you pay in becomes £100 after tax relief, then when you take it back out again it becomes £85  ( you pay no tax on £25, and £15 tax on the remaining £75)