Pension contribution / higher rate tax / annual allowance

Hello This year I expected to earn gross income of £160k. I am trying to keep my gross salary to £100k so over the year I have contributed £60k of my gross income to my employer's pension arrangement. Whilst my £60k contributions use up this year's annual allowance, I do still have unused annual allowance carry forward from previous years totalling £33k. My employer has just decided to pay me an additional £8k (gross), bringing my gross salary to £160k - £60k + £8k = £108k. I am keen to bring this back down to £100k but it is too late in the tax year to put the £8k into my Employer's pension arrangement. Is it therefore possible to: Contribute £6,400 to a Self Invested Pension Plan (separate to my Employer's pension arrangement), with the SIPP provider then applying basic rate tax savings to bring this to an £8,000 contribution Claim back £3,200 in tax via the self assessment , with this paid to me via cheque Therefore bringing my gross earnings back to £100k Thanks in advance

Hi andrewd8323,
Yes you can make a payment to a SIPP before the end of the tax year.
Thank you. 

Thanks HMRC Admin 20. and can I confirm the following please: 1) In order to reduce my gross salary by £8,000 I would need to contribute £6,400 to a SIPP? 2) I can claim back the full tax relief (ie 60%) despite being over this year’s annual allowance (due to unused carry forward) 3) By doing the above HMRC will refund me £3,200 4) I can elect to have the refund paid by cheque? Thanks Andrew

Hi andrewd8323,
Pension payments do not reduce your gross salary, they only give further relief. the relief is not 60%.
Any refund due can be paid to your bank account if you guve details on your return.
See guidance at Tax on your private pension contributions
Thank you.

 

Thanks for your message. I will pay effective tax of 60% on the income (40% income tax plus an additional 20% through loss of personal allowance due to earning over £100k), Won't I be able to get relief up to the full amount I will have paid if I put the money into a SIPP? Thanks Andrew

Hi,

If your pension savings are more than your annual allowance, you can carry forward unused annual allowances from up to 3 previous years. You can see guidance here:

Check if you have unused annual allowances on your pension savings

Thank you.

Thanks - can I claim back the full 60%?

Hi, not a HMRC Admin but may be able to help. The reason £8,000 is added to your pension when you pay £6,400 is because the pension have claimed the basic rate relief due on the contribution. This means any refund to you could only be made for any additional tax you paid. Based on the earnings you have given, this would be the difference between 40% (what you paid) and 20% (what the pension has already claimed). As this is 20% which is the same as the basic rate relief, it is nice and easy to calculate as £1,600 refund. Further, HMRC Admin are correct where they say it doesn't reduce your gross salary. But reduction of personal allowance isn't based on gross salary (you asked the Admin the wrong question to put it bluntly). It is based on adjusted net income and pension contributions do reduce your adjusted net income. It will be reduced by the amount actually contributed to the pension (£8,000 in your case). Last point, if I have understood your circumstances correctly, you're likely on a normal tax code because you weren't expecting to go over 100k. If that is the case, you won't have paid any tax on a reduced personal allowance in order to get refunded for it. But if you didn't make the pension contribution then you would end up being asked to pay it. Hope that makes sense and helps provide a better understanding of what happens or needs to happen.

Hi andrewd8323

No.  Claiming personal pension relief will increase the income taxable at 20% and reduce your income taxable at your highest rate by the same amount.  
This could have the effect of restoring personal allowances or a proportion of them.

Thank you
 

In this case, if I wanted to claim back the reinstate the full personal allowance then I would have to contribute £8000 and not £6400. Am I correct?

Hi Abhinav Gupta,
If the pension contributions are taken from your net income then yes they can reduce your adjusted net income
Personal Allowances: adjusted net income
Thank you. 

I have two questions regarding pension tax relief on pension contributions for higher rate taxpayers... Here is a hypothetical example .... Salary = £80K Contribution to SIPP from net pay = £16K SIPP provider automatically adds £4K to increase the contribution to £20K (basic rate tax relief). I claim back a further £4K through self assessment (higher rate tax relief). 1. The higher rate tax relief is received as a cash refund from HMRC directly to my bank. Is this cash classed as income and do I need to pay income tax on it? 2. I need to calculate how much of my annual allowance I have used. Have I used £20K (the amount paid into the SIPP including basic rate tax relief) or £24K (the amount paid into the SIPP + basic rate tax relief + higher rate tax relief)?

Hi ,
 

In your tax return, if you complete one, you would declare the amount you paid into the pension plus the tax relief claimed by the pension provider.  This gross figure is added to the basic rate threshold, to reduce the higher rate amount, thus giving the additional tax relief.  If you do not need to complete a tax return, you would declare the gross figure in writing and submit it to HMRXC along with supporting evidence, such as confirmation from your pension provider of payments made, so that we can extend the basic rate band and reduce the higher rate band. Thank you .