Pension tax relief - is this right?

fraser

Last financial year I reviewed my pension and decided to top up a bit.

So I made 2 lump sum payments of £3000 into my pension scheme (from my net salary pay over the year.

I am a higher rate tax payer so as I understand it I am able able to claim 40% tax relief on the £6000. I have already recieved 22% for the basic rate so need to claim the differential. Effectively the £6000 becomes £10k.

So, I have been informed by my tax office I need to write in to say this and will provide the acknowledgement letters of the lump sums from my pension providers.

The tax office says they will send me a cheque and then I can then pay into my pension. They also say I am able to claim tax relief on this again?!?! Is this right?

in simple terms all I want is for the full tax relief to be applied to my pension, i.e. the £4k into my pension.

Is this the right way to do it? Are the tax office correct?

thanks

fengirl_2

The cheque you will receive will be a tax refund. You are free to do with it what you want - put it into your pension, or take fengirl out for a meal.

JimmyTheWig

Was going to reply but got myself confused.
Did you mean you have received 18% for the basic rate? Surely basic rate tax is more than that, isn't it?

CLAPTON

I assume that this is not a company scheme but one you pay into separately?

If so it works like this

assuming tax year 2007-8

you pay your pension company 6,000 from take home pay.
they reclaim the base rate tax for you so (6000/0.78 7692 goes to increasing your pension fund.
the HMRC give you addition higher rate relief and refund you 1384
this money you can do what you like with (including fengirls suggestion-- she must have very very expensive tastes however)

But note you have NOT increased your pension fund by 10,000: you have paid 7692 into the fund at a net cost of 4615 (i.e at a net of 60% )

If you wanted to increase your fund by 10,000

then you would need to make a payment of 7,800
they would then reclaim base rate tax i.e. they would invest 7,800/.78 =10,000 for you
and the HMRC would refund you 18% of 10,000 i.e. 1,800
so your fund increases by 10,000 for a net 6,000 from you.

is that all clear?

fraser

sorry i meant 22% relief on the intial lump sum

the scheme is a group personal pension scheme, my employer pays in a contribution, there is no requirement for me to pay in anything at all