Personal pension relief

[Meltourmet]

Hi, I’d be grateful for some assistance.

I earn over £150k pa and contribute £583.33/month towards my pension (out of gross salary) while my employer contributes the same giving me total pension contributions of £1166.66 per month.

Given I earn over £150k I start off with no “tax free amount” in my tax code. However, my current tax code (269T) includes an addition of £4,375 for personal pension payments (partially offset by £1,167 from private medical and gym membership).

Can someone tell me if that £4375 is correct?

Thanks

[robbob]

I think something may have gone wrong here , note any confusion between whether your pension payments are "net pay arrangement" that are deducted from your gross salary reducing taxable pay and deductions from your net salary (after you have been taxed) can be costly from a tax perspective.

The other explanation for an incorrect coding would be if you previously or currently make pension payments on which you can claim tax relief - eg pension payments direct by you or as an avc type payment that isn't deducted from your gross pay.

The first thing to do is be certain that the only pension payments you make are actually deducted from gross pay, if this is the case your taxable pay will be lower than your gross pay (giving you immediate full relief at the correct marginal rate). I would also recommend checking your annual pension statement to make sure there are no amounts added into your pot by hmrc. The contributions will match directly what was deducted from your pay.Note employers contributions will also show up exactly as detailed with no hmrc added adjustment

If this is the case there should be no pension adjustments to your tax code , and any entry reference pension relief is wrong and needs removing - this does beg the question how long has it been there and why it is there. Have you incorrectly claimed relief on your tax return perhaps?

Note ref employers contributions you do nothing reference these - you only get tax relief on your contributions - the employers contributions are added to the pot as detailed on payslips.

One final thing worth mentioning is that once your adjusted income exceeds £150k your ability to have the full 40k per year added to your pot diminishes - it shouldnt be an issue at 150k earnings but if you exceed 210k for example you may be limited to 10k per year added into your pension before there are adverse tax charges that you would need to report on your tax return.

[Meltourmet]

Thanks robbob, I think I’ve worked out what’s happened. Up until the very start of the 18/19 tax year my pension contributions used to come out of my net (after tax) salary. I claimed higher rate relief in my 17/18 tax return and it looks as if HMRC changed my 18/19 tax code to reflect this continuing. Thing is, my employer then changed to deducting my pension contribution from gross salary giving me full relief at source! Was wondering why I owed c.£2k in my 18/19 self assessment! Guess the onus is on me to keep an eye on my tax code?!? Will speak to the revenue first thing tomorrow.

Thanks again.

[robbob]

Guess the onus is on me to keep an eye on my tax code?!?

You will not be alone in not realising the implications of the adjustment on your tax code or not paying attention to such adjustments.
My experience is that most bods are s hot discovering and investigating and challenging tax code changes that see them result in less net pay, as soon as their net pay goes up its happy days hmrc must know what they are doing if the change results in higher net pay.

as you say generally if you claim pension relief or mileage relief one year hmrc will often presume that these claims will carry on into the future at a similar level.

[Meltourmet]

Thanks again. Lesson learnt (the hard way).

I’ve got one more query if you wouldn’t mind helping. I hold some US shares which pay dividends of £1355 gross or £1152 after tax (at 15%). In my self assessment is 15% the rate of tax credit relief allowed? Cheers

[robbob]

I’ve got one more query if you wouldn’t mind helping. I hold some US shares which pay dividends of £1355 gross or £1152 after tax (at 15%). In my self assessment is 15% the rate of tax credit relief allowed? Cheers

Your relief is restricted to the extra tax you pay with that line item added to your income compared to the tax you would pay without that line item.

so calculate return with dividends excluded and note tax liability.

Add the line item foreign income without any tax credit claimed, note the increase in tax liability due - that increase is the amount of relief you can claim - subject to the 15% deducted being the max you can claim back.

reclaim will probably be 7.5% - or 15% of dividends that exceed the £2000 threshold (basic rate or higher rate) - although it could be something completely different.

[Meltourmet]

My total divs (from US and UK cos) are less than £2k, so am I not able to claim foreign tax relief on my overall income tax bill?

Thanks again

[robbob]

My total divs (from US and UK cos) are less than £2k, so am I not able to claim foreign tax relief on my overall income tax bill?

No - you can only claim foreign tax relief against the specific uk tax charged on that dividend line item - if you have paid nil tax there is nil foreign tax to reclaim sorry


https://www.gov.uk/government/publications/calculating-foreign-tax-credit-relief-on-income-hs263-self-assessment-helpsheet/hs263-calculating-foreign-tax-credit-relief-on-income-2017

The total amount of FTCR can’t be more than the total UK tax due on the dividend.

[Meltourmet]

Thanks. Oddly satisfying working all this out..