Question
I would like to make an additional personal pension contribution to more or less recover all tax paid at 40% during the year. I have two part time jobs. One income is £45000 pa and has an occupational pension with a final salary pension. I pay 7.35% and my employer pays 14% contributions. The other income is £45000 pa and my employer pars 12% and I pay 10% into a personal pension. How can I calculate the additional payment please?Answer
Let's start with a bit of maths. Your earnings for the year are £90,000 and (assuming you're under 65) the threshold for higher rate tax is £43,875 (£6,475 personal allowance plus £37,400 basic rate band), so you'd need to make £46,125 (£90,000 - 43,875) of gross pension contributions to wipe out your higher rate tax liability.
Note, the above might be a little different if you receive taxable employee benefits, but let's stick with our simple example.
You've already made £7,807 of gross pension contributions (7.35% and 10% of £45,000) leaving £38,381 (£46,125 - £7,807) of further gross contribution required.
To make this contribution you'd normally pay £30,705 into a pension. The pension provider will then automatically reclaim basic rate (20%) tax to increase your contribution to £38,381. You can then reclaim the additional 20% tax, £7,676, via your tax return.
Just a word of warning: if your annual taxable income has exceeded £130,000 since April 2007 then you'll subject to the following restrictions:
If you increase existing regular (i.e. monthly/quarterly) pension contributions and annual contributions exceed £20,000 then you'll have to pay tax on the excess to remove the benefit of higher rate tax relief.
If you make ad-hoc pension contributions, then your higher rate tax relief is limited to the lower of your average annual contribution over the three years to April 2009 and £30,000. Any excess is again taxed to reduce the tax relief to basic rate.
From 6 April 2011 the annual pension contribution limit for enjoying tax relief will be £50,000 (including employer contributions) and the rule affecting those with incomes exceeding £130,00 will be dropped. It will also be possible to carry forward any unused annual allowance (calculated at £50,000) for the last three years.
I would like to make an additional personal pension contribution to more or less recover all tax paid at 40% during the year. I have two part time jobs. One income is £45000 pa and has an occupational pension with a final salary pension. I pay 7.35% and my employer pays 14% contributions. The other income is £45000 pa and my employer pars 12% and I pay 10% into a personal pension. How can I calculate the additional payment please?Answer
Let's start with a bit of maths. Your earnings for the year are £90,000 and (assuming you're under 65) the threshold for higher rate tax is £43,875 (£6,475 personal allowance plus £37,400 basic rate band), so you'd need to make £46,125 (£90,000 - 43,875) of gross pension contributions to wipe out your higher rate tax liability.
Note, the above might be a little different if you receive taxable employee benefits, but let's stick with our simple example.
You've already made £7,807 of gross pension contributions (7.35% and 10% of £45,000) leaving £38,381 (£46,125 - £7,807) of further gross contribution required.
To make this contribution you'd normally pay £30,705 into a pension. The pension provider will then automatically reclaim basic rate (20%) tax to increase your contribution to £38,381. You can then reclaim the additional 20% tax, £7,676, via your tax return.
Just a word of warning: if your annual taxable income has exceeded £130,000 since April 2007 then you'll subject to the following restrictions:
If you increase existing regular (i.e. monthly/quarterly) pension contributions and annual contributions exceed £20,000 then you'll have to pay tax on the excess to remove the benefit of higher rate tax relief.
If you make ad-hoc pension contributions, then your higher rate tax relief is limited to the lower of your average annual contribution over the three years to April 2009 and £30,000. Any excess is again taxed to reduce the tax relief to basic rate.
From 6 April 2011 the annual pension contribution limit for enjoying tax relief will be £50,000 (including employer contributions) and the rule affecting those with incomes exceeding £130,00 will be dropped. It will also be possible to carry forward any unused annual allowance (calculated at £50,000) for the last three years.
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