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  • FIRST POST
    • jim8888
    • By jim8888 12th Jan 19, 5:48 PM
    • 73Posts
    • 66Thanks
    jim8888
    Tax relief on Pension Contributions
    • #1
    • 12th Jan 19, 5:48 PM
    Tax relief on Pension Contributions 12th Jan 19 at 5:48 PM
    I've been mucking around on the Hargreaves Lansdown pension relief tax calculator. If I put in that my income is 50K a year and that I want to contribute 40k into my pension, it informs me that I have to deposit 32k because the government chips in 8k in tax relief at 20%. It then says that as a 40% tax payer you can claim back an extra 730. But I thought as a higher band tax payer, you'd be entitled to a further 20% tax relief on your contribution of 32k?
    If I change the income to 100k then it does give you an additional 20k tax relief. So how is this being worked out at the 50k income level?
Page 1
    • HappyHarry
    • By HappyHarry 12th Jan 19, 5:56 PM
    • 906 Posts
    • 1,329 Thanks
    HappyHarry
    • #2
    • 12th Jan 19, 5:56 PM
    • #2
    • 12th Jan 19, 5:56 PM
    I've been mucking around on the Hargreaves Lansdown pension relief tax calculator. If I put in that my income is 50K a year and that I want to contribute 40k into my pension, it informs me that I have to deposit 32k because the government chips in 8k in tax relief at 20%. It then says that as a 40% tax payer you can claim back an extra 730. But I thought as a higher band tax payer, you'd be entitled to a further 20% tax relief on your contribution of 32k?
    If I change the income to 100k then it does give you an additional 20k tax relief. So how is this being worked out at the 50k income level?
    Originally posted by jim8888
    You only get 40% tax relief on your income that you paid 40% tax on.

    I.e. if you are assuming standard personal allowance of 11,850 then with a basic rate tax band of 34,500 the you will only be paying higher rate tax on 3,650.

    Basic rate tax relief is claimed on all your contribution by your pension provider, so you will be able to claim an extra 20% via your tax return on that 3,650. 20% of 3,650 is 730.
    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.
    • xylophone
    • By xylophone 12th Jan 19, 5:59 PM
    • 28,862 Posts
    • 17,469 Thanks
    xylophone
    • #3
    • 12th Jan 19, 5:59 PM
    • #3
    • 12th Jan 19, 5:59 PM
    https://www.mileiq.com/en-gb/blog/2018-uk-income-tax-rates-brackets/

    You only receive higher rate relief to the extent that you have paid higher rate tax on the contribution....
    • Dazed and confused
    • By Dazed and confused 12th Jan 19, 6:10 PM
    • 4,223 Posts
    • 2,176 Thanks
    Dazed and confused
    • #4
    • 12th Jan 19, 6:10 PM
    • #4
    • 12th Jan 19, 6:10 PM
    Tax relief on pension contributions doesn't work how you have envisaged.

    By paying into a relief at source pension all that HMRC will then do is increase the amount of basic rate tax you can pay by the gross contribution (your payment plus the basic rate tax relief added by the pension company).

    This can in turn reduce the amount of higher rate tax you have to pay. So it could save you an additional 21% (or 20% if not Scottish resident for tax purposes) but there is no automatic extra amount due. It all depends on your overall tax situation for the tax year you made the payment in.
    • Paul_Herring
    • By Paul_Herring 13th Jan 19, 12:46 PM
    • 6,691 Posts
    • 3,342 Thanks
    Paul_Herring
    • #5
    • 13th Jan 19, 12:46 PM
    • #5
    • 13th Jan 19, 12:46 PM
    I've been mucking around on the Hargreaves Lansdown pension relief tax calculator. If I put in that my income is 50K a year and that I want to contribute 40k into my pension, it informs me that I have to deposit 32k because the government chips in 8k in tax relief at 20%. It then says that as a 40% tax payer you can claim back an extra 730. But I thought as a higher band tax payer, you'd be entitled to a further 20% tax relief on your contribution of 32k?
    If I change the income to 100k then it does give you an additional 20k tax relief. So how is this being worked out at the 50k income level?
    Originally posted by jim8888
    You only get 40% relief on money that was originally taxed at 40%.

    So, from https://listentotaxman.com/50000?



    You pay 1,456.40 income tax at the 40% rate, half of that gets claimed by the company under the 20% relief, leaving 728.20 to claim back from HMRC.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • Albermarle
    • By Albermarle 13th Jan 19, 5:05 PM
    • 491 Posts
    • 271 Thanks
    Albermarle
    • #6
    • 13th Jan 19, 5:05 PM
    • #6
    • 13th Jan 19, 5:05 PM
    If I have worked it out correctly you would need to earn 67K a year to get the full tax relief.
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