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Do you include tax relief when working out Pension Annual Allowance
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MBA MBA
Posted: 29 January 2023 11:46:39(UTC)
#1

Joined: 16/12/2012(UTC)
Posts: 1,725
Its not absolutely clear on various websites how one work's out the £40k annual pension allowance if you are a higher rate tax payer (Ignore the 3 year carry forward rule for now, please).

Am I correct in thinking the max annual cash amount you can actually put into a pension is £32k because you have to include the 20% tax relief HMRC tops up the pension fund with thereby making it £40k?

I don't think one need's to include the additional 20% HMRC gives you back via your end of year tax self assessment as actual cash in your hands.

Is that what you understand?
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MBA MBA
Posted: 29 January 2023 11:47:01(UTC)
#2

Joined: 16/12/2012(UTC)
Posts: 1,725
ps in advance thank you kindly anyone who can confirm this definitively.
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Pre Ka
Posted: 29 January 2023 11:56:03(UTC)
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Joined: 07/04/2019(UTC)
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Yes that's right, you pay £32k and that will be your total 40k pension contribution for the tax year once tax man puts in the other 8k for you.
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ANDREW FOSTER on 29/01/2023(UTC), Tim D on 29/01/2023(UTC), Guest on 05/02/2023(UTC)
MBA MBA
Posted: 29 January 2023 12:20:13(UTC)
#4

Joined: 16/12/2012(UTC)
Posts: 1,725
Pre Ka;255537 wrote:
Yes that's right, you pay £32k and that will be your total 40k pension contribution for the tax year once tax man puts in the other 8k for you.


amazing, thanks for taking the time
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P C2
Posted: 30 January 2023 15:27:13(UTC)
#5

Joined: 24/12/2019(UTC)
Posts: 4
If I've understood you correctly, I think you've reached an incorrect conclusion. I think 'Pre Ka' has answered a different question to the one you were actually asking, or has slightly misunderstood your question.

It is my understanding that the £40k annual allowance does include ALL tax relief. So, 32k + 8k relief at 20%, or 24k + 16k relief at 40%. That is my understanding, but you should ask a professionally qualified person.
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MarkSp
Posted: 02 February 2023 06:20:51(UTC)
#8

Joined: 02/02/2020(UTC)
Posts: 2,199
Might be a bit late but you can still reopen your return if this applies

If you are paying 40% tax you need to add back in your additional tax relief as the £40k cap is the total contribution across all pension contributions

Ifyou are paying 40% or some of the contribution attracts 40% relief you need to reduce your payments to include the tax refund you will get via self assessment

It can be a bind if your 40k total is at different tax rates
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SF100
Posted: 02 February 2023 22:22:06(UTC)
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MarkSp;256014 wrote:
Ifyou are paying 40% or some of the contribution attracts 40% relief you need to reduce your payments to include the tax refund you will get via self assessment

You make it sound very complicated.
The OP is correct.
Any additional tax relief (ie the additional 20% for higher rate payers) either gets refunded to your bank account or HMRC adjust your tax code to take less tax off you over the next year (or two). This refunded portion does not get put into the pension resulting in > £40k, unless you specifically choose to put it in, & most people wouldn't.
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Tyrion Lannister on 03/02/2023(UTC)
Newbie
Posted: 02 February 2023 22:47:30(UTC)
#10

Joined: 31/01/2012(UTC)
Posts: 3,819
Slightly off topic.

I am aware that a child or non tax payer can put up to £3600 (£2880 net) into a pension.
Does anyone know if you are allowed to go back 3 years with this also ?
In other words
a) for a young child with not income can I put in 3 years allowance
b) for a teenager who is doing part-time work and has income of say £3k ish can they go back 3 years also.

Thanks in advance.
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Tyrion Lannister
Posted: 03 February 2023 00:37:08(UTC)
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Newbie;256170 wrote:
Slightly off topic.

I am aware that a child or non tax payer can put up to £3600 (£2880 net) into a pension.
Does anyone know if you are allowed to go back 3 years with this also ?
In other words
a) for a young child with not income can I put in 3 years allowance
b) for a teenager who is doing part-time work and has income of say £3k ish can they go back 3 years also.

Thanks in advance.


As I understand it you can go back for a or b but you can’t put in more than the teenager earned in each individual tax year year.
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Newbie on 03/02/2023(UTC)
chazza
Posted: 04 February 2023 15:56:08(UTC)
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MBA MBA #1

Yes, the max. you can contribute is £40k, so the amount of cash you have to part with is £32k, because HMRC will (after a delay of 6 or 8 weeks) make it up to £40k.
On your tax return, you should enter £40k as your contribution the SIPP.
HMRC will then increase your personal allowance by £40k in consideration of your contribution to the SIPP, and this increased personal allowance will decrease the amount of income taxable at 40% (or more).
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MBA MBA on 11/02/2023(UTC)
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