Tax relief confusion

gillsfan_2

Hi,

I'm planning to make some additional pension contributions via lump sum. I've been trying to confirm how much tax relief I will get. As a higher rate tax payer the tax on a marginal £1 earned will be 40p so for a contribution of 60p, I would expect to get 40p relief in total - a 'return' of 66% but I have come accross conflicting advice as follows:

This from http://www.iii.co.uk/sipp/?type=lesstax

Contribute to your pension:

Pay £8,000 into your SIPP and the Inland Revenue will automatically rebate £2,000 back to your account. And if you are a higher rate tax payer you can claim a further £2,000 back via self assessment, turning a £6,000 contribution into a £10,000 pension fund without risking a penny
- a cool 66% return.

and this from the BBC (http://news.bbc.co.uk/1/hi/business/7209266.stm) - old rates but the message is clear - 51% 'return' (new rate 50%).

Higher rates

For higher rate taxpayers, there is the additional benefit of being able to claim back from the government the difference between the basic rate of 22% and the higher tax rate of 40% - another 18%.
The higher rate relief is calculated on the gross contribution.
So in the above example, the additional relief would be £18.
Nominally therefore, the tax relief is 40%, but because of the way it is calculated, an initial outlay of £78 produces total tax relief of £40 - which is a return of 51%.

Can anyone confirm that it is the 66% that I will receive and not 50%?

Gillsfan

jem16

gillsfan wrote: »

and this from the BBC (http://news.bbc.co.uk/1/hi/business/7209266.stm) - old rates but the message is clear - 51% 'return' (new rate 50%).

I have no idea where you got the 50% from.

Both 66% and 51% are correct. 66% for this tax year and 51% from last year.