Personal pension contributions tax return

I was trying to fill in my tax return the other night and no–one I asked knew the answer to this question, which is not entirely obvious, so having looked into it, I thought I would share what I now believe to be the correct answer here.

The issue is that you get tax relief on pension contributions. But what do you have to do to make sure this happens?

If you pay only basic rate tax (22%), you don’t have to do anything. You make your payments out of your post–tax pocket and the pension company automatically reclaims the basic rate tax that you have already paid from the Inland Revenue and adds it to the amount going into your personal pension fund.

If you pay higher rate tax, the same thing happens at the pension fund side, in that they claim the basic rate tax back and add it to your pot automatically. But the money you’ve paid the pension fund with has been taxed at 40%, not 22%. So you have to fill in a tax return to claim back the difference.

The tricky bit is knowing what figure to fill in on the tax return. Do you fill in the amount you actually paid, the amount you actually paid plus the tax you’ve already paid (i.e. adding the 40% back on) or something else?

The answer is something else. You put on your tax return the amount you actually paid plus the basic rate tax on that amount (i.e. you multiply by 100/78). The reason is that this is the actual amount that has ended up in your pension pot, because the pension people will have claimed the 22% tax back from the Inland Revenue. It is the amount that actually goes in your pot that the Inland Revenue need to know in order to figure out what tax you should be getting back.

If you are a higher rate tax payer, what happens is they say “OK, this guy has got X quid in his fund, which includes an amount of basic rate tax. So we’ve given 22% of the amount to the pension fund. We therefore need to make sure that this guy gives us that 22% so we’re back at zero, and that the fella pays no further tax on the amount that has gone into his pot”. The way they do this is by increasing your basic rate limit by the amount of what has gone into your pot, so that you end up reimbursing the Inland Revenue through your tax for the amount that the pension fund has claimed off them (i.e. basic rate tax on the amount in the pot), but making sure that you are not charged any higher rate tax on that amount.

Are the lib dems in any danger of getting elected in the foreseeable? Presumably not, right? Therefore, their internal squabbling about whether or not they would impose a 50% income tax rate were we to find ourselves in that particular parallel universe pretty much amounts to diddly squat.

Anyone seen Sacha Baron-Cohen lately?

I’ve kept quiet about world politics for a while on the advice of my security advisors, but I had to say something about this. Pope quotes ancient text which was critical of the teachings of Mohammad for endorsing the use of violence. This apparently “offends” Muslims worldwide. The reaction from Al Qaeda, of course, is immediately to threaten extremely violent and indiscriminate reprisals, supposedly on the authority of — guess what — a saying of the Prophet Mohammed:

“We shall break the cross and spill the wine. … (you will have no choice but) Islam or death,” said the statement, citing a hadith (saying of the Prophet Mohammed) promising Muslims that they would “conquer Rome... as they conquered Constantinople”.

“We tell the worshipper of the cross (the Pope) that you and the West will be defeated, as is the case in Iraq, Afghanistan, Chechnya. God enable us to slit their throats, and make their money and descendants the bounty of the Mujahideen”

Riiiiiight. These guys just don’t get it, do they? You honestly couldn’t make this shit up. It’s just got to be a joke, right? I swear Ali–G is alive, well, and has infiltrated Al Qaeda’s press office for comedy value.

Diving

Just back from Sardinia, where I experienced open water SCUBA diving for the first time with Blue Service diving school instructing. Did 8 dives in the sea and got the PADI open water qualification. Weird feeling initially, being under water, but very cool. Would recommend Blue Services if you find yourself in the market for that sort of thing over there, and would be keen to go diving again.