Net adjusted income - how to treat pension contributions over the annual allowance?

Hi, My employer makes salary sacrifice pension contributions on my behalf and I am aware that these reduce my taxable income and thus also my net adjusted income. What I am not sure on if there are salary sacrifice pension contributions over and above the pension annual allowance. For example if I salary sacrifice £65k to my pension, and tax becomes liable on the £5K over the £60k limit (assuming there is no carry forward annual allowance left to utilise) does this £5k get added back when calculating my adjusted net income (as given it is salary sacrifice it was excluded from taxable income). If you can please clarify. Thanks

Hi 

No.  The pension savings tax charge, would be added to your taxliability after you have calculated your relevant net earnings and the tax calculated on this first.  
The pension savings tax charge would then be added as an amount of tax, calculated from your highest rate of tax.

Thank you

Thanks, to expand on my earlier example and to confirm my understanding of your response if I had a gross salary of £164k and I salary sacrificed £65k, the pension savings tax charge (£5k x 40% = £2k) would be added back to my adjusted net income? So £164k - £65k + £2k = £101k, and thus above £100k limit for government tax free childcare. Or does the pension tax savings charge of £2k have no impact on adjusted net income, and so my adjusted net income calculation would just be £164k - £65k = £99k (and thus still eligible for government tax free childcare) If you can please confirm. Thanks.

Are you please able to advise on this? Thanks

Name removed admin 

Hi TES_M3,
Please refer to for information :
Tax on your private pension contributions
Thank you. 

HMRC admin, I had already read that link on “tax on your private pension”, but from what I can see it only comments on the pension tax that is payable. As per the above that is not what I am querying. I am querying the treatment of pension contributions above the annual allowance in relation to adjusted net income calculation. From the examples below what is the correct treatment for adjusted net income calculation. Base info: Gross salary £164k Pension contributions £65k (via salary sacrifice) Pension tax charge £2k (£5k x 40%) Example 1 Adjusted net income = £164k less £65k = £99k Pension tax liability is noted in self assessment but is not considered within net income calculation. £5k pension contribution over £60k annual allowance is still a permitted deduction in calculation of adjusted net income. Example 2 Adjusted net income = £164k less £65k plus £5k = £104k The £5k pension contribution above the £60k annual allowance is not a permitted deduction when calculating adjusted net income and as such is added back in. Pension tax liability is noted in self assessment Example 3 Adjusted net income = £164k less £65k plus £2k = £101k The fully £65k pension contribution is a permitted deduction (despite £5k) over the annual allowance but the pension tax charge is added back on when calculating adjusted net income. As per other examples pension tax liability is noted in self assessment. Out of the 3 above examples what is the correct treatment? If neither of these are correct can you please detail the correct treatment using the base figures used in the above examples. Thanks

Hi,

As per our previous answer provided on 17 April 2024, the result detailed in your third example would be the correct outcome.

Thank you.

Thanks for you quick response and answering my query. Your reply on the 17th April made no reference to adjusted net income…only reference to tax liability and pension tax charge being added as an amount of tax…wasn’t that clear in regards to adjusted net income hence my request for additional clarification as with tax (and HMRC’s application of the rules) there is no room for misinterpretation.