Higher rate tax payer

Pinky_UK

Silly question… please educate me.

If you are able to reclaim tax at a higher rate for something if you are a higher rate tax payer, is the amount you can reclaim limited to the amount you earn over the basic tax bracket?

So, for example, if (through salary sacrifice pension or other things) I was a higher rate tax payer as I earn £1 over the threshold, could I then claim the full 40% back on my mileage claim?

Thank you

Isthisforreal99

No, that would be ridiculous. You would get £1 at 40% and the rest at basic rate

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81908417#Comment_81908417

But I suspect it's not an unusual belief!

NoMore

It's the opposite of the myth, if I creep into a higher tax band, then all of my earnings are subject to the new tax rate.

Pinky_UK

Fair points. I had not really thought about it - I saw myself as a ‘higher rate tax payer’, but i suppose I should look at it instead as a person who instead has a proportion of their tax in the higher band.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81908624#Comment_81908624

Correct.

And with regard to your original scenario, there is a situation where you could "claim the full 40% back on my mileage claim".

But it would be unusual for someone to be claiming relief on just £1 of expenses 😉

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81908445#Comment_81908445

Only the amount above the rate change threshold incurs the higher tax rate.

NoMore

https://forums.moneysavingexpert.com/discussion/comment/81909106#Comment_81909106

I know, I said it's a myth and was pointing out its the same thing as the OP was thinking but in reverse, which as pointed out is also a myth.

Exodi

Pinky_UK

Silly question… please educate me.

FWIW I don't think that's a silly question at all - I've heard far worse from friends and family, and I've certainly wondered worse things in the past. One of my good friends turned down a payrise (much to his employers surprise) because he thought that as it would push him into the higher rate tax bracket, he'd be worse off as he believed he'd starting paying 40% on his total income. He vehemently argued it with us for a long time until the penny dropped. This misunderstanding is incredibly widespread (I see it a lot on social media and I has some part to play in the the fear behind the state pension exceeding the personal allowance).

Unfortunately no, what you are suggesting would cause a significant loop hole:

E.g.
Person A earns £50,270 p/a

Contributes £10,000 into a relief at source pension, pays income tax of £2,000 (£10,000 at 20%) and receives £2,000 in basic rate tax relief.

Tax incurred: £2,000, tax reclaimed: £2,000.

Person B earns £50,271 p/a

Contributes £10,000 into a relief at source pension, pays income tax of £2,000.20 (£9,999 at 20% + £1 at 40%) and receives £2,000 in basic rate tax relief + claims £2,000 in higher rate tax relief.

Tax incurred: £2,000.20, tax reclaimed: £4,000.

Unfortunately HMRC is not so generous as to give people back tax they never paid. You can only reclaim higher rates of tax if you actually paid it.

Pinky_UK
if (through salary sacrifice pension or other things) I was a higher rate tax payer as I earn £1 over the threshold, could I then claim the full 40% back

To be clear, you don't claim for the tax in a salary sacrifice pension arrangement - as it is made as an employer contribution, you are not taxed on it to begin with (so there is nothing to reclaim).

Dazed_and_C0nfused

Unfortunately HMRC is not so generous as to give people back tax they never paid. You can only reclaim higher rates of tax if you actually paid it.

Although that is generally true, relief at source pension contributions are an outlier and someone could get £2,514 in pension tax relief despite paying no tax.

And no doubt a little bit more in some less common situations.

Exodi

https://forums.moneysavingexpert.com/discussion/comment/81909508#Comment_81909508

You're totally right, Im not sure why I forgot about those earning less than the basic rate band. Thanks for noticing