Personal Contribution to Pension

PenguinForever

Hi everyone,

I just wanted to sense-check something. I’ve been looking at a few online sources and think I understand it now, but it’s taken me quite a while to wrap my head around it, so I’d really appreciate someone confirming whether I’ve got this right.

Goal:
Reduce the amount of 40% tax I pay.

Context:
I earn around £57,000 a year on average (sometimes a little more, sometimes a little less).

What I think I need to do:

1. Contact my workplace pension provider and ask to make an additional personal contribution of £580 per month.
2. Inform HMRC about this so they can adjust my tax code accordingly.

Have I understood this correctly, or am I missing anything? Thanks in advance for any guidance!

(I have checked and my workplace do not do salary sacrifice)

Isthisforreal99

Thw first thing you need to establish is how will relief be given for these contributions?

1. Salary sacrifice
2. Net pay scheme
3. Relief at source

If either 1 or 2 then you don't nees to do anything further as your taxable pay will automatically be adjusted. If 3, then, yes, you need to contact HMRC.

Edit, just noticed your last sentence? Do they do net pay scheme?

PenguinForever

thank you for your reply. Is there anyway I could tell this from my wageslip?

Isthisforreal99

https://forums.moneysavingexpert.com/discussion/comment/81923927#Comment_81923927

If your gross pay differs from your taxable pay by an amount equal to your pension contribution then it will be net pay.

Or if you have online access to your pension account and it shows tax relief being added then will be relief at source.

Marcon

Have a look back to where you asked a similar question 8 months ago - the info there is still valid:

https://forums.moneysavingexpert.com/discussion/6622266/paying-extra-into-my-pension-to-save-tax

Virtually all the auto-enrolment schemes used by smaller employers are relief at source, with one or two notable exceptions. If you name the pension scheme you're in, someone here can probably confirm whether it's net pay or relief at source.

PenguinForever

Royal London 🙏

PenguinForever

This is all for the tax year 25/26.

My tax code was 1383M

My P60 states my earnings for this tax year was £54,658.07

Tax paid: £8787.20

My pension is relief at source 

This year, contributions into my pension I have made (I’m not including employees contribution) through my wages has been £2194.64

For a while now, I have been keen to utilise my pension to eliminate paying 40% tax on some of my earnings. I used chatgbt to establish if I’m due any kind of refund and how much should I pay as a personal one off payment into my pension to totally remove paying 40% tax. 

It states: 

I should pay a personal contribution of: £308

This brings my net of what I’ve paid into my pension £2502.64

I then take the £2502.64 x 1.25 = £3,128.30 - this is what I report to MHR

It then says I will be entitled to a refund of £625 from HMRC. 

Does this sound right guys? I am so confused by all of this and it’s very tough to get my head round.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81942350#Comment_81942350

I very much doubt ChatGPT would get this right with the information you have provided.

Have you already received your P60 for the tax year which finishes next week?

Is £2,194.64 definitely not inclusive of the basic rate relief the pension company adds?

Do you have any other taxable income, even just a pound of interest or dividend income? Or company benefits?

Does ChatGPT understand how Marriage Allowance works?

Based on the figures you have provided you are ignoring the tax you will owe from being ineligible for Marriage Allowance. That will cancel out plenty of the higher rate relief due on the pension contributions.

PenguinForever

yes already got my P60.

No, the basic rate relief the pension company adds is not included in that figure.

I get some interest on savings, but nothing over £500.

I don’t know about marriage tax complications, I’ll have to look into this.

PenguinForever

I looked into the Marriage tax allowance issue. However, if I make a personal contribution to my pension to eliminate higher rate tax, would this not mean not only would I get the refund I mentioned above? But also, now still be entitled to marriage tax allowance as I wouldn’t be a higher rate tax payer?

thanks so much for replying by the way, I really appreciate it!

DRS1

Hopefully someone will be along to correct me but

Assume you have taxable earnings of £54658.07 and taxable interest of £500 that gives total taxable income of £55158.07.

Higher rate tax starts at £50271 so you want to get down to £50270 (I know with relief at source it is the higher rate threshold that gets increased but for maths purposes let's stick with a nice easy sum of £55158.07 - £50270 to give £4888.07.

£4888.07 is the gross pension contribution you want to have made in 25/6. 80% of that is £3910.46. That is the net contribution to make but you have already made net contributions of £2194.64 so you need to make net contributions of another £1715.82.

I am well off ChatGPT so I could be very wrong with my maths.