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Newbie Q on company group personal pension and higher tax rate
luckysh0t
Posts: 30 Forumite
Hi
I am earning north of £40k annually gross and I've read my pension fund (standard life) claim back tax relief on top ups at the basic rate of relief so I need to go to HMRC directly to get this back. That bit I'm ok with according to the advice I can do so via self-assessment.
One thing I'm not clear on is this: My employer contributes along with me in a 5:4 ratio. Is the government's 25% contribution over and above this or do I not qualify for government payment if my employer contributes more (maybe it's included in the company contributions)?
I am earning north of £40k annually gross and I've read my pension fund (standard life) claim back tax relief on top ups at the basic rate of relief so I need to go to HMRC directly to get this back. That bit I'm ok with according to the advice I can do so via self-assessment.
One thing I'm not clear on is this: My employer contributes along with me in a 5:4 ratio. Is the government's 25% contribution over and above this or do I not qualify for government payment if my employer contributes more (maybe it's included in the company contributions)?
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Comments
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Hi
I am earning north of £40k annually gross and I've read my pension fund (standard life) claim back tax relief on top ups at the basic rate of relief so I need to go to HMRC directly to get this back. That bit I'm ok with according to the advice I can do so via self-assessment.
One thing I'm not clear on is this: My employer contributes along with me in a 5:4 ratio. Is the government's 25% contribution over and above this or do I not qualify for government payment if my employer contributes more (maybe it's included in the company contributions)?
If you have £100 deducted from your net pay then Standard Life would claim an additional £25 in tax relief (at basic rate). The employer would then pay in £125 as well. So in total you would have £250 in your pension fund.
At the end of the year, if you include your total contributions for the year on your self assessment return, you will receive the difference between 40% relief and the 20% relief already received. This will be paid directly to you rather than into the pension.0 -
The government 'contribution' directly to the pension is the basic rate tax relief. So if you put £80 in from your net pay, they gross it up to £100. As a result you can look at it as, they have given you £20 on your £80 investment which is 25%.
Or you could look at it as, they have given you back your £20 of basic rate tax that you suffered on your £100 salary (20%) so that when you put £100 gross into your pension instead of taking the cash, you haven't suffered the basic rate tax that you'd have suffered if you choose not to make the pension contribution and instead just got £80 of net cash from your £100 wages.
For basic rate taxpayers you don't need to claim anything from HMRC.
If you're a higher rate tax payer, then ending up with a £100 pension investment for £80 is not all the tax relief you're entitled to, because as a 40% taxpayer you would expect to be able to make a £100 investment for £60. So HMRC will sort you out for the 'missing' tax relief when you do your tax return so that you get £20 back in your own hands and it only costs you net £60 really, once the refund is complete.
However if you're 'only just' a high rate taxpayer and you make large pension contributions, you might not get higher rate relief on all of it, because you won't have paid high rate tax on all of the money anyway0 -
thanks guys.
So do all higher rate tax payers need to contact HMRC/fill in the necessary details on Self Assessment, in order to claim their actual relief over and above the basic? ie it's not added automatically into our company group scheme regardless of it being taken out either automatically before payment to my bank account or as a top-up manual payment by myself?0 -
If your pension contributions are take before tax then there is nothing to do as the tax is already right.
If the pension contributions are taken after tax then the tax relief is claimed by the pension scheme and should be visible in the pension account. Under these circumstances if you are a higher rate tax payer you need to claim the additional relief as part of self assessment.0
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