Higher Rate Tax Relief
Comments
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Either way, the additional tax relief appears to come back to you as money in your pocket, rather than actually in your pension? Is this a correct interpretation?
I suppose that means you can then pay it straight into your pension as soon as your receive it, so it gets in there eventually but a year later than the basic rate tax relief does.
With salary sacrifice does the whole 40% relief go into the pension at the start (thus earning an extra year's growth)?
Thanks!0 -
Thanks everyone for your comments.
So taking the tax return route, it is technically a bit disingenuous for these pension companies to say "40% tax relief" and imply that this means the extra 40% ends up in your pension pot? Only 20% does and the rest you have to then decide what to do with.
My interpretation is that, if it is on offer, salary sacrifice is the better option but I am not entirely clear?Original Mortgage (Feb '17) £269,995
Current Mortgage (End 11/19) £226,790
End Date November 2039 Original End Date February 20420 -
Triumph - thanks. My point is, I don't want the extra £20 back, I want it in my pension pot!Original Mortgage (Feb '17) £269,995
Current Mortgage (End 11/19) £226,790
End Date November 2039 Original End Date February 20420 -
Thanks everyone for your comments.
So taking the tax return route, it is technically a bit disingenuous for these pension companies to say "40% tax relief" and imply that this means the extra 40% ends up in your pension pot? Only 20% does and the rest you have to then decide what to do with.
My interpretation is that, if it is on offer, salary sacrifice is the better option but I am not entirely clear?
Sal Sac always wins unless you are below the tax threshold.0 -
sal sac is good and simple but you cannot sal sac below minimum wage and it might affect benefits like life assurance (e.g. 4 x salary but which salary do they use) and bonuses depending on how stingy your employer isI’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.0 -
Triumph - thanks. My point is, I don't want the extra £20 back, I want it in my pension pot!
You want to put £100 in your pension. You want it to cost you £60. This is how it works:- Contribute £80. Pension £80, cost £80
- Scheme claims relief. Pension now £100, cost still £80
- You claim relief. Pension still £100, cost now £60.
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Thanks - I seem to have a massive blind spot when it comes to understanding how pensions work! Which is annoying, as I like to 100% understand everything I am doing financially, so that I can plan as best as possible for the future.
I think I was looking at it from the wrong end ie. the extra tax relief would boost what is in the pot, rather than that the same amount goes into the pot but the tax relief comes back to me.Original Mortgage (Feb '17) £269,995
Current Mortgage (End 11/19) £226,790
End Date November 2039 Original End Date February 20420 -
Thanks - I seem to have a massive blind spot when it comes to understanding how pensions work! Which is annoying, as I like to 100% understand everything I am doing financially, so that I can plan as best as possible for the future.
I think I was looking at it from the wrong end ie. the extra tax relief would boost what is in the pot, rather than that the same amount goes into the pot but the tax relief comes back to me.0 -
You want to put £100 in your pension. You want it to cost you £60. This is how it works:
- Contribute £80. Pension £80, cost £80
- Scheme claims relief. Pension now £100, cost still £80
- You claim relief. Pension still £100, cost now £60.
..and if you want a £100 contribution into employer scheme where contributions are deducted from your pay before the calculation of income tax you make you make a £100 contribution.
Your taxable pay is reduced and income tax was never paid on that contribution.
Your total taxable pay for the year will be reflected as such on your P60 and
no additional relief is (or can) be claimed.0 -
To revive this thread for one further question - I now have the ability to pay an extra £500 pcm into a pension.
If I increase my contribution to the workplace pension it will work as discussed above. If I set up a separate private pension, presumably I make separate payment of £500 each month from my net salary received (so, already taxed) and wait until the end of the tax year to do a return and get all the available tax relief as a rebate? How long does it normally take to receive the rebate once the tax return has been submitted?
Thanks!Original Mortgage (Feb '17) £269,995
Current Mortgage (End 11/19) £226,790
End Date November 2039 Original End Date February 20420
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