NHS Pension Extra Contributions - HRT

german_keeper

A friend of mine who works in the NHS and is a Higher Rate taxpayer has asked me about making extra pension contributions for tax reasons. I assume she means tax relief, particularly any amount that she pays 40% tax on.

I have had a quick look at the website and it looks like there are 3 choices, very similar to the Civil Service ones which I am reasonably familiar with. As a starting point I will just point her to the website.

I have a couple of points which I think I understand but I would be grateful for confirmation please, having never been anywhere near HRT myself!

Firstly as it is a net pay scheme the tax relief is fairly easy, it will automatically be sorted out through the net pay process. And secondly, regarding maximising HRT tax relief, she would just subtract £50,270 from her gross salary and the result would be the amount of extra conts to receive tax relief at 40%.

To be honest I think it is probably a non starter as I get the impression she thinks there is some sort of financial jiggery pokery possible which just results in an increase to her net pay!

Thanks

hugheskevi

regarding maximising HRT tax relief, she would just subtract £50,270 from her gross salary and the result would be the amount of extra conts to receive tax relief at 40%.

Careful with terminology! She would just subtract £50,270 from her taxable income.

Dazed_and_C0nfused

To be honest I think it is probably a non starter as I get the impression she thinks there is some sort of financial jiggery pokery possible which just results in an increase to her net pay

It would be a reduction in net pay, just a very tax efficient one which gives her a better pension when she retires.

german_keeper

https://forums.moneysavingexpert.com/discussion/comment/81936378#Comment_81936378

Yes gross/taxable/pensionable, this always seemed to be my achilles heel when working. I usually got my payslip and calculator out and worked through it. I still have a calculator but nowadays no payslips! I think it was the fact that pension contributions were taken before tax deduction was calculated but still classed as taxable income.

So assuming gross pay of £60,000 (also assuming no other non taxable elements) with standard pension conts, based on NHS pension website, of 10.7% being £6,420 does that mean taxable pay is £60,000 or £53,580? I think it is still £60,000 isn't it? Therefore another £3,310 would still be "available" for higher rate relief via extra pension contributions.

german_keeper

Which I will of course try and encourage. I don't know all the ins and outs but she was really struggling financially a few years ago due to a no good ex husband. Her aunt, who is an ex Civil Service colleague of mine, managed to persuade her of the value of a public sector pension, and to stay in the pension scheme which thankfully she did.

In recent years she has done very well at work with promotions so hopefully she will be in a position to now take advantage.

Edit; just to clarify I tried quoting D & C's post but it doesn't seem to have worked.

hugheskevi

So assuming gross pay of £60,000 (also assuming no other non taxable elements) with standard pension conts, based on NHS pension website, of 10.7% being £6,420 does that mean taxable pay is £60,000 or £53,580? I think it is still £60,000 isn't it? Therefore another £3,310 would still be "available" for higher rate relief via extra pension contributions.

Gross £60,000, taxable £53,580, available for higher rate relief £3,310.

german_keeper

https://forums.moneysavingexpert.com/discussion/comment/81936660#Comment_81936660

Yes thanks very much,seems obvious now. All the pension conts, both standard and extra are non taxable. So the extra £3,310 is also non taxable, taxable pay is £50,270 therefore no 40% tax due.

The downside is that I feel like I have been transported back to my desk at work sat with my payslips and calculator. Better go and have a lie down.

SacredStephan

If the NHS worker is already claiming tax relief on uniform laundry, professional subscriptions and socks-or-tights and shoes then their tax free amount will be higher than 12570 and therefore their HRT threshold will be higher than 50270.

A contribution to a SIPP or personal pension would be accessible at age 55 (or 57), rather than age 67 for the NHS pension and would have the same effect to reduce or eliminate HRT although the worker would need to notify HMRC to get the higher rate relief.