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Where Taxpayers and Advisers Meet

How Do I Claim Tax Releif on Pension Contribution

caffe
Posts:28
Joined:Wed Aug 06, 2008 4:02 pm
How Do I Claim Tax Releif on Pension Contribution

Postby caffe » Sun Mar 12, 2017 5:59 pm

Hello I am a little confused how to declare pension contribution I am going to make towards my pension.

I had invested £30k in loan notes with my work for the last 15 years earning me interest which has compounded.

This year I have to draw this down and will be paid £80,000 (£50,000 will be interest).

I will receive the money gross of tax.

I want to pay £50,000 into my pension , carrying forward any necessary unused allowance from previous year. I am a 40% tax payer.

How do I go about this?

Do I pay £30,000 (less tax of £20,000) into my pension and then let the pension company claim the relief for me.

Or do I pay in £50,000 and declare on self assessment that it is gross payment before tax.

Thanks

Caffe

AmanSood
Posts:216
Joined:Mon Jan 09, 2017 4:12 pm

Re: How Do I Claim Tax Releif on Pension Contribution

Postby AmanSood » Mon Mar 13, 2017 8:37 am

Think there's more information needed in order to advise you on the situation but i'll provide a high level overview and make a few assumptions. I'll assume that the £50k interest earned would be treated as taxable income on you and will therefore need to be reported on your self assessment tax return. When you file your return, you would include additional gross (pre-tax relief) pension contributions of £50k which will offset the interest earned and therefore no additional tax will be payable.
Advising on UK employment, expatriate and personal taxes
aman.sood@e-taxconsulting.com.
+44 (0) 207 846 0155

someone
Posts:691
Joined:Mon Feb 13, 2017 10:09 am

Re: How Do I Claim Tax Releif on Pension Contribution

Postby someone » Mon Mar 13, 2017 12:38 pm

Not sure if AmanSood has answered the question you were asking or not.

If you're paying the 50K in via a net pay agreement then you just pay the 50K in (I think technically it's your employer who will pay the money in)

But if you receive the 50K and then pay it into a pension you will be using "relief at source". In this case you will make a contribution of 40K and the pension company will reclaim the basic rate tax (10K) to make it up to the 50K

If I'm reading your question correctly, you expect to receive the 50K without any tax deducted. That means is that when you do your tax return you will have to pay an extra 10K in tax. i.e. you pay 40K to the pension company and 10K to HMRC. The pension company reclaims the 10K from HMRC so that it ends up in your pension.

If income tax is deducted then you will receive 30K. You pay 40K in to the pension and will get 10K back from the HMRC when you do your tax return. (No idea what you might be able to do if you don't have the 10K spare until you can reclaim it from HMRC)

You have to receive enough taxable income to make the contribution to your pension. I don't know if interest counts. Given how close we are to the end of the tax year, it's probably worth talking to a professional about this as you cannot backdate pension contributions to an earlier tax year (you can carry forward unused allowance but that's a different thing)

Pension companies have helplines - and if you tell them you are thinking of contributing 50K I'm sure they'll be more than willing to help you. Mine recently helped check my calculations of my available annual allowance and how much I could contribute this year from my bonus.

caffe
Posts:28
Joined:Wed Aug 06, 2008 4:02 pm

Re: How Do I Claim Tax Releif on Pension Contribution

Postby caffe » Mon Mar 13, 2017 10:16 pm

Thank you Someone, your explanation makes a lot of sense.

When I look to set up a payment through the SIPP account that I am trying to set up it calculates the tax relief automatically so £40k invest (they claim £10k tax relief which they state takes 9-11 weeks).

I am hoping to receive the payment by the 1st April, which is quite tight before end of tax year..

Another side question is how do the HMRC treat end of year transactions? Is it the time the transaction is complete or when the money has physically move, e.g. if I set up the payment with the pension company on the 3rd of April and I have a receipt for this but the actual money does not leave my account until the 6th April how would this be treated??


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