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    • VDOT47
    • By VDOT47 16th Apr 19, 1:09 PM
    • 245Posts
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    VDOT47
    Higher Rate Tax Relief
    • #1
    • 16th Apr 19, 1:09 PM
    Higher Rate Tax Relief 16th Apr 19 at 1:09 PM
    Hi,


    Can someone answer a question please? As far as I can tell from reading around the subject, higher rate tax relief on pension contributions can be claimed through submitting a tax return at the end of the year. The tax appears to come back to you either by way of a tax rebate or through an adjustment to your tax code (thus, presumably reducing the tax you pay the following year?).


    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!
    Original Mortgage (Feb '17) 269,995
    Current Mortgage (08/04/19) 234,184
    End Date February 2040 Original End Date February 2042
Page 1
    • OldMusicGuy
    • By OldMusicGuy 16th Apr 19, 1:17 PM
    • 895 Posts
    • 1,946 Thanks
    OldMusicGuy
    • #2
    • 16th Apr 19, 1:17 PM
    • #2
    • 16th Apr 19, 1:17 PM
    I don't know about salary sacrifice, but for higher rate tax relief pension contributions they will come back as a refund after the first year you claim them. You then have the choice of refunds or having your tax code adjusted so that you pay less tax throughout the year.

    I always opted for refunds because my contributions varied quite a lot from year to year.
    • Lokolo
    • By Lokolo 16th Apr 19, 1:18 PM
    • 20,088 Posts
    • 15,232 Thanks
    Lokolo
    • #3
    • 16th Apr 19, 1:18 PM
    • #3
    • 16th Apr 19, 1:18 PM
    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?
    Originally posted by VDOT47
    Yes


    With salary sacrifice does the whole 40% relief go into the pension at the start (thus earning an extra year's growth)?
    Originally posted by VDOT47
    You don't get tax relief as you haven't paid the tax on the money in the first place. It goes in from your gross.
    • MallyGirl
    • By MallyGirl 16th Apr 19, 1:25 PM
    • 3,596 Posts
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    MallyGirl
    • #4
    • 16th Apr 19, 1:25 PM
    • #4
    • 16th Apr 19, 1:25 PM
    plus salary sacrifice gains you the relief from NI on the sacrificed amount as well
    • menziesthefish
    • By menziesthefish 16th Apr 19, 2:13 PM
    • 15 Posts
    • 9 Thanks
    menziesthefish
    • #5
    • 16th Apr 19, 2:13 PM
    • #5
    • 16th Apr 19, 2:13 PM
    plus salary sacrifice gains you the relief from NI on the sacrificed amount as well
    ...so long as your employer is willing to add this to your contribution rather than pocket the difference. Not all do, so it's worth asking.
    • MallyGirl
    • By MallyGirl 16th Apr 19, 2:33 PM
    • 3,596 Posts
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    MallyGirl
    • #6
    • 16th Apr 19, 2:33 PM
    • #6
    • 16th Apr 19, 2:33 PM
    you always 'save' your NI but whether you get employer NI as well is more variable - I don't but husband does
    • Dox
    • By Dox 16th Apr 19, 3:01 PM
    • 1,334 Posts
    • 993 Thanks
    Dox
    • #7
    • 16th Apr 19, 3:01 PM
    • #7
    • 16th Apr 19, 3:01 PM
    Yes




    You don't get tax relief as you haven't paid the tax on the money in the first place. It goes in from your gross.
    Originally posted by Lokolo
    Salary sacrifice doesn't 'go in from your gross' - your gross salary is reduced by the amount you are sacrificing and your employer pays the contribution, based on the full amount of salary you have sacrificed. The employer can claim corporation tax relief on the pension contribution, but as you haven't paid any tax of any sort on it, there is nothing to add to your pension pot and nothing to record on your tax return.
    • Lokolo
    • By Lokolo 16th Apr 19, 3:09 PM
    • 20,088 Posts
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    Lokolo
    • #8
    • 16th Apr 19, 3:09 PM
    • #8
    • 16th Apr 19, 3:09 PM
    Salary sacrifice doesn't 'go in from your gross' - your gross salary is reduced by the amount you are sacrificing and your employer pays the contribution, based on the full amount of salary you have sacrificed. The employer can claim corporation tax relief on the pension contribution, but as you haven't paid any tax of any sort on it, there is nothing to add to your pension pot and nothing to record on your tax return.
    Originally posted by Dox
    Yes, should have said "reduces your gross" rather than go in from your gross.
    • Dazed and confused
    • By Dazed and confused 16th Apr 19, 8:39 PM
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    Dazed and confused
    • #9
    • 16th Apr 19, 8:39 PM
    • #9
    • 16th Apr 19, 8:39 PM
    The tax appears to come back to you either by way of a tax rebate or through an adjustment to your tax code (thus, presumably reducing the tax you pay the following year?).
    No. HMRC do not alter the tax code of one year to allow pension tax relief for a different tax year.

    If you complete a Self Assessment return any tax relief due will form part of the tax calculation for the year the return is for. HMRC may then assume that you will pay a similar pension contribution in the following year and adjust your tax accordingly but that is to allow provisional tax relief for the later year, not to allow relief from the tax return year.
    Last edited by Dazed and confused; 16-04-2019 at 8:44 PM.
    • Dazed and confused
    • By Dazed and confused 16th Apr 19, 8:40 PM
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    Dazed and confused
    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?
    Basically yes. Might be an actual refund or a reduction in tax you owe for other reasons but it is you who benefits, not the pension fund.
    • Dazed and confused
    • By Dazed and confused 16th Apr 19, 8:42 PM
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    Dazed and confused
    With salary sacrifice does the whole 40% relief go into the pension at the start (thus earning an extra year's growth)?
    You don't get pension tax relief with salary sacrifice. You are giving up part of your salary, which usually means you pay less tax and National Insurance.

    In return your employer contributes extra to a pension. Employer contribution do not attract personal tax relief.

    You are saving tax and NI by having a lower salary, not by pension tax relief.
    • Triumph13
    • By Triumph13 17th Apr 19, 9:15 AM
    • 1,450 Posts
    • 1,962 Thanks
    Triumph13
    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!
    Originally posted by VDOT47
    I think what you are missing is that to get 100 into the pension when the contribution is from your net pay you don't pay in 60 then try to get the tax in the pension too. You pay in 80, HMRC adds 20 and you reclaim another 20 in cash (or via tax code) from HMRC yourself to bring your net contribution back down to 60.
    • VDOT47
    • By VDOT47 17th Apr 19, 9:15 AM
    • 245 Posts
    • 697 Thanks
    VDOT47
    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 (08/04/19) 234,184
    End Date February 2040 Original End Date February 2042
    • VDOT47
    • By VDOT47 17th Apr 19, 9:16 AM
    • 245 Posts
    • 697 Thanks
    VDOT47
    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 (08/04/19) 234,184
    End Date February 2040 Original End Date February 2042
    • Triumph13
    • By Triumph13 17th Apr 19, 9:17 AM
    • 1,450 Posts
    • 1,962 Thanks
    Triumph13
    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?
    Originally posted by VDOT47
    No, the whole 40% ends up in the pension pot. You just have to 'lend' 20% until you reclaim it from HMRC.
    Sal Sac always wins unless you are below the tax threshold.
    • MallyGirl
    • By MallyGirl 17th Apr 19, 9:18 AM
    • 3,596 Posts
    • 8,951 Thanks
    MallyGirl
    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 is
    • Triumph13
    • By Triumph13 17th Apr 19, 9:20 AM
    • 1,450 Posts
    • 1,962 Thanks
    Triumph13
    Triumph - thanks. My point is, I don't want the extra 20 back, I want it in my pension pot!
    Originally posted by VDOT47
    You want to put 100 in your pension. You want it to cost you 60. This is how it works:
    1. Contribute 80. Pension 80, cost 80
    2. Scheme claims relief. Pension now 100, cost still 80
    3. You claim relief. Pension still 100, cost now 60.
    Simples.
    • VDOT47
    • By VDOT47 17th Apr 19, 9:31 AM
    • 245 Posts
    • 697 Thanks
    VDOT47
    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 (08/04/19) 234,184
    End Date February 2040 Original End Date February 2042
    • Triumph13
    • By Triumph13 17th Apr 19, 9:37 AM
    • 1,450 Posts
    • 1,962 Thanks
    Triumph13
    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.
    Originally posted by VDOT47
    Don't worry, you are not alone in struggling with this one. The prize goes to the lady a few years ago who, before asking for help on here, had paid her contribution, got a cheque from HMRC for tax relief, paid that into the pension, got another cheque from HMRC, paid that into the pension, got another cheque and was worried that she was trapped in a never-ending cycle of smaller and smaller tax refunds...
    • Funkyfreddy
    • By Funkyfreddy 17th Apr 19, 11:39 AM
    • 316 Posts
    • 118 Thanks
    Funkyfreddy
    You want to put 100 in your pension. You want it to cost you 60. This is how it works:
    1. Contribute 80. Pension 80, cost 80
    2. Scheme claims relief. Pension now 100, cost still 80
    3. You claim relief. Pension still 100, cost now 60.
    Simples.
    Originally posted by Triumph13

    ..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.
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