Pensions Tax Relief - Event Q&A

Last Updated: 15 Aug 24 5 min read

On 15 August 2024 the M&G Wealth Technical Team held an online event covering the operation of the Annual Allowance. The event Q&A are below.

Tax Matters

Sole trader - If say relevant income is £110,000 and made £57,500 contribution to pension(gross) , do they still lose the personal allowance?

No, their adjusted net income would be less than £100,000.

There is some confusion regarding NHS employee pension not used for adjusted net income.. what’s the exact guidance on that

We assume you mean pension contributions. Not sure why there is confusion as they are net pay contributions and they reduce your adjusted net income as they reduce your income at Step 1 of the income tax computation, which is before you calculate ANI.

Can you please clarify the operation of HRT relief on 3rd party pension contributions please?

It operates in the same way as if the scheme member paid personally.

Employee - basic income £95k, then gets Employer bonus through the year of £35k - so looses the personal allowance. Later in the year, can the employee pay a personal pension contribution 9 in order to regain his personal allowance?

Yes, you assess at the end of the tax year what your ANI is.

Can a company make an employer pension contribution for a director that is over 75?

Yes they can and they will get corporation tax relief if it’s wholly and exclusively for the purposes of the trade.

How would HMRC view a contribution above allowance, or over 75 w/o relief for IHT saving?

You need to report contributions in the 2 years prior to death to HMRC and they may potentially look back 7 yrs for transfers of value.  If the contributions are made while in health and are out of the ordinary HMRC may well consider them transfers of value.

Earning £20,000 pa. is it still worth making a net pension contribution of £16,000 even though £12570 is non-taxable?

We think that generally speaking, at least £12,570 gross should be in a RAS scheme to ensure tax relief.

Earnings Matters

If Rental income typically is not counted as "relevant earnings", if a client is a "self Employed" (not ltd co) professional land lord where all his £60,000 income is derived from rental income. What contributions can he make to a relief at source scheme?

£3,600 gross.

Is there a list of relevant earnings? I always get confused about self-employed dividends.

See Pension Tax Manual.

Isn't there a limit on the pensions relief of £60,000? Not sure in the example mentioned, how would the relevant earnings of £1 million be considered as relief?

You get full tax relief on contributions up to your relevant earnings.   Tax Relief has no other limit. But if you breach your annual allowance you may also get an annual allowance charge that would reduce the benefit of any relief (but may still be worth it overall).

Does income from a Special Purpose Vehicle (with rental properties) count as NRE?

We don’t believe so – it’ll be investment income.

Are RSUs and LTIPs relevant earnings? Do they need to be included in adjusted income for tapered annual allowance calcs?

Check with who is offering them, but if they are taxed as employment income (we don’t believe they all are) then they are relevant and included in the taper calculations.

Annual Allowance Matters

Can a client use carry forward and receive tax relief on the whole amount in one tax year. ie more than 60k?

Assuming they have the relevant earnings to support the contribution then yes.  You only ever get tax relief as an individual in the tax year you are deemed to have paid.

Can a company owner age over 75, but still working for his company, still make use of carry forward when determining a suitable employer contribution to be made for his benefit?

Yes, they can.

You mentioned a salary of £1m and contributing £800k. Is it not capped at £60kpa + any carry forward?

No, tax relief and annual allowance are inter-related from a practical point of view but wholly separate from a tax point of view.

A bonus can be sacrificed as employer contributions, any other lump sum contribution allowed by employer. Particularly due to NI saving by ER & EE. I assume carry forward not an option for employer?

There is no interaction between corporation tax relief and annual allowance. Annual Allowance only applies to scheme members.

Other Matters

Does it have to be a tax return for the HRT / ART relief? Can a letter be sent to HMRC? (For those who don’t do Self-Assessment)

You can get your relief by contacting HMRC without self-assessing.

How are pension pots considered by local councils re long term care?

A notional income is placed on the value of the pot if it is uncrystallised.

If you earn 15k. Can you pay full 15k or do you have to reduce in relation to minimum wage?

You cannot salary sacrifice below minimum wage. Our understanding is that RAS contributions and Net Pay contributions should be OK as minimum wage is based on income before pension contributions. 

There was an ongoing consultation regarding harmonising the difference between net pay and relief at source. ( net pay under personal allowance not relievable where as relief at source is, do you know if this is ongoing or no longer being reviewed?

The “net pay anomaly” is now fixed and people should start to see money coming back after the end of this tax year.  Note the net pay anomaly only applies to those with total income after net pay contributions that are less than the personal allowance.

Where can I find the formulas for the calculations and results you have mentioned?

The tax relief modeller crunches the numbers – our return numbers are basically net benefit at end less net cost at start converted to a percentage.

I have looked on the Tech Matters website and I cannot see the booking page for the annual allowance webinar.

It’s here!

On the basis you have relevant earnings of £1m and you opt to pay the annual allowance tax charge from spare cash, does it make sense to make the pension contribution on the basis you are immediately reducing your estate by both the pension contribution and the tax charge, or is a rule stopping this?

We cant think of a specific rule preventing it, though their could be IHT implications on death.  Running the numbers would be needed to see if it was actually worth it, we suspect there are alternate ways of making that £1m work for you

My tax relief modeller is all black rather than green in excel so cant use it...any ideas why?

They are built to “die” at the end of the tax year. You should download a new one from the website. Alternatively always go to the website and you will get the most up to date one – we occasionally make enhancements during the year.

If , as rumoured, Labour were to remove access to tax-free cash, how quick could this be done, especially if some people are using pensions to redeem their mortgages?

In theory, they could do it overnight. 

In the example of normal expenditure rule contributing £500 pm to Rachel and Ben, this would need to be below the yearly amount of £2,880 net pension contribution (Gross £3,600 contribution limit if no relevant earnings) or this rule doesn't apply?

You can pay up to 100% of relevant earnings of your “child” and in the example Rachel and Ben are higher rate taxpaying “children”.

Can an individual over age 75 make a 3rd party contribution?

Yes, the scheme member gets the tax relief not the over 75 person. They just get IHT saving.

We have clients looking to access their pensions for the PCLS in case Labour decide to tax it going forwards. What's your view on this happening please?

Les’ view:

We have heard these rumours on and off since 2003 when tax free cash was mooted to become pension commencement lump sum, under blue , red and coalition governments.   The general public need to save more and one of the only things they know and like about pension is they get a tax free lump sum, so taking it away may harm retirement savings.  The tax free amount is now frozen and will melt away with inflation.

So we think it will be unlikely but not impossible. If it did happen it would be very unusual to take away what you had already become entitled to.

How does tax relief work on pension contributions in relation to student loan repayments?

Not sure it’s necessarily a relief – you’re just delaying paying off something you are paying interest on.

Net pay – does not impact repayment levels

Salary Sacrifice – reduces contribution levels

Self-employed to any pension – reduces contribution levels

Repayment amounts differ based on whether it is an employer repaying or whether it is through assessment to income tax.  The repayment levels on assessment to income tax are based on net pay after any type of pension contribution as per The Education (Student Loans) (Repayment) Regulations 2009 (29)(4)(j).  Deductions by employers are based on gross pay less £15,000.

It is unclear how it works with employed people also within self-assessment.

Please share the link to the Tax Relief Tool calculator

It’s here!

Is the SIPP considered as pension contribution under Net Pay?

No, personal pensions including SIPPs operate Relief at Source.

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