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    • mpension
    • By mpension 25th May 19, 1:02 PM
    • 19Posts
    • 2Thanks
    mpension
    annual limit and tax relief
    • #1
    • 25th May 19, 1:02 PM
    annual limit and tax relief 25th May 19 at 1:02 PM
    Hi,
    I wonder if I can get some advice please?

    I have searched on google for an answer, but all seem to say the same thing without actually aswering my question.

    Regarding the annual limit (40,000). if a person earns 80,000 and wants to put in the max, is that 40k from their wages, or is it 40k including tax relief?

    Not sure if that makes sense, but wondering if its 26k(ish) and made up to 40k with the tax relief or 40k then tax relief added?

    also, is there a calculator to tell me ho much relief i will get on an amount (e.g 28k), that will calculate the 20% and 40% parts - so what will go in in total?

    Many thanks for any help. If there's a site that will explain this - I'd be happy to go to it and read.
    Regards
Page 1
    • Paul_Herring
    • By Paul_Herring 25th May 19, 1:36 PM
    • 6,852 Posts
    • 3,522 Thanks
    Paul_Herring
    • #2
    • 25th May 19, 1:36 PM
    • #2
    • 25th May 19, 1:36 PM
    It's the total that ends up in your pension fund; I. E. Your contributions, any 20% tax relief if you're not using salary sacrifice, and employer contributions.

    The remaining relief on the 40% doesn't count to the limit since it's claimed outside the pension.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • xylophone
    • By xylophone 25th May 19, 1:39 PM
    • 29,829 Posts
    • 18,251 Thanks
    xylophone
    • #3
    • 25th May 19, 1:39 PM
    • #3
    • 25th May 19, 1:39 PM
    John Smith earns £80,000 a year.

    He opens a personal pension.

    He transfers the sum of £32,000 to the pension.

    The provider claims tax relief of £8000 and adds it to the pension.

    Because John is a higher rate tax payer, he contacts HMRC about additional relief.

    https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
    • xylophone
    • By xylophone 25th May 19, 1:46 PM
    • 29,829 Posts
    • 18,251 Thanks
    xylophone
    • #4
    • 25th May 19, 1:46 PM
    • #4
    • 25th May 19, 1:46 PM
    See also

    https://www.which.co.uk/money/pensions-and-retirement/pensions-retirement-calculators/pension-tax-relief-calculator-angp51p666u6

    https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator

    https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/how-the-pensions-annual-allowance-works-ac8d33u9v9ch
    Last edited by xylophone; 25-05-2019 at 1:50 PM. Reason: add
    • mpension
    • By mpension 25th May 19, 2:18 PM
    • 19 Posts
    • 2 Thanks
    mpension
    • #5
    • 25th May 19, 2:18 PM
    • #5
    • 25th May 19, 2:18 PM
    Many thanks for your help. much appreciated.

    I saw that quote from HMRC, however, i pay through salary sacrifice. does that mean the 40% is taken care of already?
    that's what I've been told. i don't claim it back as I haven't paid the 40% in the first place - the salary has been 'sacrificed'

    if that is the case, how can i work out how much i can put in without going over 40k total? im not entirely sure how much will get 20% and how much will get 40%

    many thanks again for your help - it really is appreciated
    • mpension
    • By mpension 25th May 19, 2:19 PM
    • 19 Posts
    • 2 Thanks
    mpension
    • #6
    • 25th May 19, 2:19 PM
    • #6
    • 25th May 19, 2:19 PM
    oops, just seen the links from xylophone. thank you.
    • Albermarle
    • By Albermarle 25th May 19, 2:25 PM
    • 883 Posts
    • 517 Thanks
    Albermarle
    • #7
    • 25th May 19, 2:25 PM
    • #7
    • 25th May 19, 2:25 PM
    i don't claim it back as I haven't paid the 40% in the first place - the salary has been 'sacrificed'
    Correct, the money goes into your pension before it is taxed .

    im not entirely sure how much will get 20% and how much will get 40%
    As it I salary sacrifice this has no part in calculating the annual allowance .
    All you need to do is add what you are sacrificing to what your employer contributes and make sure in a tax year the total is less than £40K
    • Paul_Herring
    • By Paul_Herring 25th May 19, 2:25 PM
    • 6,852 Posts
    • 3,522 Thanks
    Paul_Herring
    • #8
    • 25th May 19, 2:25 PM
    • #8
    • 25th May 19, 2:25 PM
    if that is the case, how can i work out how much i can put in without going over 40k total?
    £40k minus your employer contributions is the amount you may salary sacrifice.

    As you said, SS doesn't get taxed, so there are no rebates to be had to claim back tax that wasn't taken.

    The upside to SS being you don't get NI taken off those contributions either so you 'win' that way.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • BoxerfanUK
    • By BoxerfanUK 25th May 19, 2:28 PM
    • 425 Posts
    • 326 Thanks
    BoxerfanUK
    • #9
    • 25th May 19, 2:28 PM
    • #9
    • 25th May 19, 2:28 PM
    Donít forget the 40k limit also includes any employer pension contribution
    • dunstonh
    • By dunstonh 25th May 19, 2:33 PM
    • 98,597 Posts
    • 66,994 Thanks
    dunstonh
    And dont forget that you may be eligible for carry forward and able to pay in more than £40k.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Dazed and confused
    • By Dazed and confused 25th May 19, 2:56 PM
    • 4,899 Posts
    • 2,554 Thanks
    Dazed and confused
    And as it is salary sacrifice you aren't actually contributing to a pension. Your employer is.
    • mpension
    • By mpension 25th May 19, 4:05 PM
    • 19 Posts
    • 2 Thanks
    mpension
    Many thanks for the helpful replies. so grateful.
    Re the carry forward.. is that the same as using a previous years allowance and is that just a phone call to HMRC to sort out?
    Last edited by mpension; 25-05-2019 at 4:07 PM.
    • dunstonh
    • By dunstonh 25th May 19, 4:32 PM
    • 98,597 Posts
    • 66,994 Thanks
    dunstonh
    Re the carry forward.. is that the same as using a previous years allowance and is that just a phone call to HMRC to sort out?
    Subject to qualification, you can use 3 previous years. You don't contact HMRC. You just keep a record.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • mpension
    • By mpension 25th May 19, 4:38 PM
    • 19 Posts
    • 2 Thanks
    mpension
    Wow, I didn't know it was that easy. that is good news.

    Many thanks.
    • Paul_Herring
    • By Paul_Herring 25th May 19, 4:43 PM
    • 6,852 Posts
    • 3,522 Thanks
    Paul_Herring
    Re the carry forward.. is that the same as using a previous years allowance and is that just a phone call to HMRC to sort out?
    Previous years unused allowance, for the avoidance of doubt.

    https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings#carry-forward-your-unused-annual-allowance

    You can carry forward unused annual allowances from the 3 previous tax years. You do not need to report this to HMRC.

    If you have unused annual allowances from more than one year, you need to use them in order of earliest to most recent.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • mpension
    • By mpension 25th May 19, 5:34 PM
    • 19 Posts
    • 2 Thanks
    mpension
    Thanks for the link Paul
    • pennystretcher
    • By pennystretcher 4th Jun 19, 4:40 PM
    • 430 Posts
    • 1,506 Thanks
    pennystretcher
    You didn't mention if you were in DC or in DB scheme. The formula for the annual allowance will also take any guaranteed lump sums if you are in a DB scheme.


    See here how to calculate the annual allowance and more information about tax relief:
    https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/the-annual-allowance
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