Tax relief a guide for pension members

Transcription

1 Tax relief a guide fr pensin members

2 Tax Relief One f the biggest advantages f being a member f a pensin arrangement is the tax relief yu will receive n the cntributins yu pay. This guide lks at hw tax relief perates fr thse with Persnal Pensins and Stakehlder Pensins (including Grup arrangements). Other pensin arrangements (such as multi-emplyer arrangements like NEST) may als use this basis. Wh is eligible t receive tax relief n their pensin arrangement? In rder t receive tax relief n the pensin cntributins yu pay, yu must be aged under 75 and classed as a relevant UK individual. A relevant UK individual is smene wh: Has earnings during the tax year that are subject t Incme Tax in the UK; r Is resident in the UK at sme pint during the tax year; r Was resident in the UK when they jined the pensin and at sme pint during the past five tax years; r Has (r their spuse has) general earnings frm verseas Crwn emplyment subject t UK tax fr that year. The tax year runs frm 6th April t 5th April. Hw is tax relief received? If yu are paying int a pensin arrangement such as a Persnal Pensin r a Stakehlder Pensin, basic rate tax relief is given at surce. This means that the cntributin net f basic rate tax is taken frm yur net (i.e. take hme) pay. Basic Rate Tax is currently 20%. This means that if yu pay a cntributin f 100, nly 80 will be taken frm yur tax hme pay. Hwever, 100 will be allcated t yur pensin pt nce received by the pensin prvider. This happens autmatically and yu d nt need t d anything t receive this. If yu are required t pay a percentage f salary int yur wrkplace pensin arrangement, this is usually the amunt befre any tax relief. Based n sme cmmn cntributin structures, the actual amunt that will be taken frm yur take hme pay is as fllws: Persnal cntributin as a percentage f salary Net percentage deducted frm take hme pay 1% 0.8% 2% 1.6% 3% 2.4% 4% 3.2% 5% 4%

3 What if I am a higher rate r additinal rate tax payer? If yu are a higher r additinal rate tax payer yu can als claim additinal relief. This is given by extending the amunt f yur salary that is subject t Basic Rate Tax. This means that less f yur incme falls int the higher rate tax bracket and yu therefre pay less tax verall. Hw d I claim higher/additinal rate tax relief? If yu cmplete an annual tax return yu can enter details f the pensin cntributins yu have made during the tax year n this. Alternatively, yu can write directly t yur tax ffice t apply fr the additinal relief. Can I backdate higher/additinal rate tax relief? If there are sme years fr which yu haven t claim higher rate tax relief yu can still apply fr this. Usually HM Revenue & Custms will allw yu t backdate any such applicatins fr a maximum f fur tax years. What happens if I am using salary exchange? If yu currently use salary exchange (als knwn as salary sacrifice) as a way f making yur persnal cntributin int the pensin arrangement, all cntributins will effectively be classed as an emplyer cntributin. This means that if yu are a higher rate r additinal rate tax payer yu d nt need t reclaim the additinal relief. Hwever, with salary exchange, as yur salary will be reduced, yu will pay less tax s the net impact will be the same. In additin yu will als benefit frm the Natinal Insurance savings t be made by utilising salary exchange. T find ut mre abut salary exchange please visit the link belw: Will I be taxed n the cntributin my emplyer pays? N, emplyer cntributins t an emplyee s pensin arrangement are nt classed as a benefit in kind and yu will nt be taxed n the amunt yur emplyer pays n yur behalf. There are hwever limits as t hw much yu can pay int pensins with tax relief and if the ttal cntributins paid by yu and yur emplyer exceed the Annual Allwance (standard allwance is 40,000 fr 2017/18) there may be a charge payable. Hw much tax relief can I receive? Yu can nly receive higher rate r additinal rate tax relief t the extent that yu pay higher rate/additinal rate tax. Fr example, if 10,000 f yur incme falls int the higher rate tax bracket, yu can nly reclaim tax relief t this extent. There are als limits as t hw much yu can pay int yur pensin with tax relief. These are effectively 100% f salary subject t the Annual Allwance (standard Allwance is 40,000 fr 2017/18). Yu can als cntribute up t 3,600 grss a year withut reference t earnings. Sme peple may have a lwer Annual Allwance than the standard amunt. This may apply t yu if yu are a high earner (have a ttal incme in excess f 150,000 per annum) r yu have flexibly accessed yur pensin benefits.

4 Nte that cntributins are assessable fr tax relief in the year they are paid, even if yu are carrying frward unused allwances frm previus tax years. T find ut mre abut cntributin limits t pensins, please visit the fllwing link: Imprtant Ntes The infrmatin cntained in this dcument is based n One Pensin Cnsultancy s understanding f the legislatin as at May This dcument is fr infrmatin purpses nly and des nt cnstitute advice. Registered in England Number OC Registered Office: 2 Venture Rad Chilwrth Suthamptn SO16 7NP. One Pensin Cnsultancy LLP is authrised and regulated by the Financial Cnduct Authrity.

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