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    • NorthernGeezer
    • By NorthernGeezer 2nd Feb 18, 9:50 PM
    • 118Posts
    • 20Thanks
    NorthernGeezer
    Annual contribution
    • #1
    • 2nd Feb 18, 9:50 PM
    Annual contribution 2nd Feb 18 at 9:50 PM
    I want to take advantage of the tax breaks you get on additional pension contributions, just checking if i'm reading this right......................

    If i earn £30k a year and me and my employers pension contribution is £5k a year, this leaves me a total of £25k a year which can be made as an additional contribution, £20k of me and £5k of the tax man, is this correct?
Page 1
    • HappyHarry
    • By HappyHarry 3rd Feb 18, 1:04 AM
    • 637 Posts
    • 910 Thanks
    HappyHarry
    • #2
    • 3rd Feb 18, 1:04 AM
    • #2
    • 3rd Feb 18, 1:04 AM
    I want to take advantage of the tax breaks you get on additional pension contributions, just checking if i'm reading this right......................

    If i earn £30k a year and me and my employers pension contribution is £5k a year, this leaves me a total of £25k a year which can be made as an additional contribution, £20k of me and £5k of the tax man, is this correct?
    Originally posted by NorthernGeezer
    Not quite.

    You can contribute a total of £30,000 gross, i.e. you make a net contribution of £24,000 and will receive tax relief of £6,000.

    Your employer contribution does not count towards this total.

    However, your gross contribution plus your employer’s contribution should not exceed the annual allowance of £40,000. In your situation, that limit is not breached, so you can effectively contribute all your salary and receive tax relief on all of it.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • Noodling
    • By Noodling 3rd Feb 18, 1:38 AM
    • 17 Posts
    • 3 Thanks
    Noodling
    • #3
    • 3rd Feb 18, 1:38 AM
    • #3
    • 3rd Feb 18, 1:38 AM
    Also, you need to consider the type of pension you are contributing into at work. If it is DC pension, then it is as above. However, if it is a DB pension, then I believe, your contributions are valued at 16 X the annual accrual, uplifted for inflation.
    • kidmugsy
    • By kidmugsy 3rd Feb 18, 2:20 AM
    • 10,866 Posts
    • 7,429 Thanks
    kidmugsy
    • #4
    • 3rd Feb 18, 2:20 AM
    • #4
    • 3rd Feb 18, 2:20 AM
    Also, you need to consider the type of pension you are contributing into at work. If it is DC pension, then it is as above. However, if it is a DB pension, then I believe, your contributions are valued at 16 X the annual accrual, uplifted for inflation.
    Originally posted by Noodling
    You also need to check carefully the details of the employer's scheme if you plan to use it for your extra contribution. You might find you don't gain a tax advantage by contributing money corresponding to the tax-free part of your earnings i.e. the amount beneath the Personal Allowance. The solution then is to contribute that money to a personal pension that you would set up yourself.
    Free the dunston one next time too.
    • Dazed and confused
    • By Dazed and confused 3rd Feb 18, 8:46 AM
    • 2,633 Posts
    • 1,260 Thanks
    Dazed and confused
    • #5
    • 3rd Feb 18, 8:46 AM
    • #5
    • 3rd Feb 18, 8:46 AM
    Kidmugsy makes an important point which has caused some financial anguish for one or two other posters on here in the past.

    If you are making additional contributions out of gross pay into your employers scheme you wouldn't be paying tax on the first £11,500* of this year's salary due to the Personal Allowance.
    *it might be slightly different in your personal circumstances but that's the basic principle

    If you are paying into a personal pension or SIPP and your total taxable income for the year is the £30k you refer to then you will not save anything at all off your normal tax you have to pay on the £30k but you will be entitled to the basic rate tax relief which is added to your pension fund i.e. you contribute £20,000, the pension company claims £5,000 from HMRC so your pension fund has £25,000 in it.
    Last edited by Dazed and confused; 03-02-2018 at 8:48 AM.
    • NorthernGeezer
    • By NorthernGeezer 4th Mar 18, 8:42 PM
    • 118 Posts
    • 20 Thanks
    NorthernGeezer
    • #6
    • 4th Mar 18, 8:42 PM
    • #6
    • 4th Mar 18, 8:42 PM
    My plan is to pay in from other sources, not my salary.
    Ok, i understand i dont count my employers contribution but do i need to consider mine and subtract it from my gross?
    • Linton
    • By Linton 4th Mar 18, 10:23 PM
    • 9,395 Posts
    • 9,528 Thanks
    Linton
    • #7
    • 4th Mar 18, 10:23 PM
    • #7
    • 4th Mar 18, 10:23 PM
    My plan is to pay in from other sources, not my salary.
    Ok, i understand i dont count my employers contribution but do i need to consider mine and subtract it from my gross?
    Originally posted by NorthernGeezer
    Yes the limits cover all contributions you make to any pension during the tax year.
    • NorthernGeezer
    • By NorthernGeezer 24th Mar 18, 12:49 PM
    • 118 Posts
    • 20 Thanks
    NorthernGeezer
    • #8
    • 24th Mar 18, 12:49 PM
    • #8
    • 24th Mar 18, 12:49 PM
    So, do i pay in £30k and with the £6k off HMRC have £36k or do i pay in £24k and with the £6k i have in off HMRC have £30K?
    • Linton
    • By Linton 24th Mar 18, 1:46 PM
    • 9,395 Posts
    • 9,528 Thanks
    Linton
    • #9
    • 24th Mar 18, 1:46 PM
    • #9
    • 24th Mar 18, 1:46 PM
    So, do i pay in £30k and with the £6k off HMRC have £36k or do i pay in £24k and with the £6k i have in off HMRC have £30K?
    Originally posted by NorthernGeezer
    You should always make pension calculations in terms of gross contributions and adjust for any tax refunds at the end. So its £30K gross, 80%=£24K from you and 20%=£6K from HMRC.
    • NorthernGeezer
    • By NorthernGeezer 24th Mar 18, 2:42 PM
    • 118 Posts
    • 20 Thanks
    NorthernGeezer
    So you cant pay in 100% of your salary then?
    If i earn £30k and pay in £24k, thats a shortfall of £6k.
    I understand HMRC make up the difference to give a gross figure but that means the statement "you can pay in 100% of your salary to your pension fund" is incorrect.
    • Zanderman
    • By Zanderman 24th Mar 18, 3:21 PM
    • 1,601 Posts
    • 4,135 Thanks
    Zanderman
    So you cant pay in 100% of your salary then?
    If i earn £30k and pay in £24k, thats a shortfall of £6k.
    I understand HMRC make up the difference to give a gross figure but that means the statement "you can pay in 100% of your salary to your pension fund" is incorrect.
    Originally posted by NorthernGeezer
    Not 100% of your gross salary, no.

    You get tax relief on pension contributions - so the figure you pay in is a figure after tax, not before. Otherwise how could there be tax relief?
    • TcpnT
    • By TcpnT 24th Mar 18, 4:03 PM
    • 123 Posts
    • 67 Thanks
    TcpnT
    I understand HMRC make up the difference to give a gross figure but that means the statement "you can pay in 100% of your salary to your pension fund" is incorrect.
    You're splitting hairs here. The amount that ends up in your pension scheme is 100% of your gross salary. Exactly how that is made up depends on your scheme. If an employer pays your contribution pre-tax from your gross salary then he pays the full amount 30,000 and the scheme does not add any tax relief because the contribution came from untaxed income. If you pay in 24,000 from taxed income then the scheme can claim the tax relief and add it to your contribution. End result is the same. You end up with 100% of your gross salary in the scheme.
    • NorthernGeezer
    • By NorthernGeezer 24th Mar 18, 5:14 PM
    • 118 Posts
    • 20 Thanks
    NorthernGeezer
    Got it.
    Looking at the maths again i've paid in £133 more than i should have.
    Whats the implications of this?
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