Higher Rate Taxpayer? Claim Your Extra 20% Back

How much can you contribute to your pension? Any amount you want, you can contribute 1 million. The NHS pension is not a matter of addition or subtraction. We use something called pension growth. So pension growth is basically at the beginning of the year. At the end of the year, how much has your pension grown? If you've put in £20,000, the government comes in and says, look, Chimex, you put in 20,000 in your private pension. We've taxed you on this money already because this money is coming out of your pocket. We shouldn't have taxed in the first instance. So here at Chimex, take your money money back. Most people get the 20 and they relax and they're fine. But not you, because you know better, because you attended the tax hack. If you're a higher rate taxpayer, you need to claim the extra 20%. Right. Now let's move quickly to the next allowance. We've already touched on it, so that should be quick, is your pension allowance. And again, workshop. I'm not doing all the heavy lifting here. Tell me in the chart, how much, for an adult working and living in the uk, how much can you contribute to your pension? Is a tricky question. Yeah, I need. Many of you are going to rush and say 60k. I'm just being a bit, I'm just being a bit naughty. How much can you contribute to your pension? Any amount you want. You can contribute 1 million. Okay, you can contribute 2 million. Now here's the question you thought I asked. How much can you contribute to your pension and get to live for? These are two different things. It's £60,000. Okay, so you can contribute up to £60,000, but again, that 60,000 includes how much you contribute to your pension, how much your employer contributes to your pension, how much you contribute to any private pension and how much the government contributes to your pension. And you're wondering, does the government contribute to my patient?

Yes.

If you put your pension inside a private pension, the government will give you back whatever tax you paid on it, 20 back automatically. So all that must not exceed £60,000. Okay? So in the tax year starting from April, the taxes starts in April, ends in April. So in a whole tax year you are allowed up to 60,000 pounds, which is really important because like the example also gave at the beginning, was able to put in some money to his pension. But you must not enter the trap where a lot of senior NHS medics have fallen into. If you put too much money, you cross that 60k threshold, HMRC, then, you know, gives you a Penalty now up to like 4, 5, 3, 4 five years ago. I think it was just two years ago that they changed the allowance to 60k. It was 40k for a while, then it's been increased to 60k. So that 60k. Okay. Most people never really make use of their full 60k allowance because they don't even know about it. I'll give you a practical example. Let's say you work for the NHS and you earn £100,000. 12.5 is deducted from your pension. So 12.5% is what you contributing to your pension port and your employer is paying another 23.7%. Okay? Now the NHS pension is not a matter of addition or subtraction. We use something called pension growth. So pension growth is basically at the beginning of the year. At the end of the year, how much has your pension grown? It's also called pension impute amount. Let's say that after your contribution and your employer's contribution and the adjustment for inflation and everything, your pension growth, AKA pension input amount, AKA how much of your pension allowance you've used for the year, let's say is about, I'll say 40, 000. Okay? And that's being generous because it might probably be somewhere around 35 or 36. Now you've got a whole 60k. I've used up 40k. That means you've got another 20, 000 allowance they haven't used. Most people don't know about this. I mean some people know, but they just like. I'm not sure of how to work out how much to contribute.

Here's how to avoid the 60% tax trap. As a doctor or healthcare professional, this could actually literally save you thousands of pounds because you could be unknowingly paying an effective tax rate of 60%. Now many doctors think that most tax they pay is 45%, but that's not right. You may have fallen into the 60% tax trap due to a sneaky rule about personal tax allowances. Now let me tell you how it works. Everyone, especially in uk, Northern Ireland, England and Wales, has a personal tax free allowance of 12,570. Once you exceed 100k in income, you start to lose that tax allowance. And by the time you hit 125k, it's almost like you are punished with this sneaky 60% tax because your effective tax rate becomes 60%, you've lost all your tax allowance. Now I've done a guide that will tell you step by step how this works. A checklist to check if you are falling into it and how to avoid it. Thousands of medics have already used this guide to save thousands of pounds and secure their financial future. Don't miss out. Download the guide with the link in the description and I hope it helps. Let's jump right back to the episode.

So now if you decided, well, it's 100k, I'm fine, I'm not going to do anything about it, that's fine. But if you said, well, it's 100k but I made another 30000 in locum, I don't want to have to pay this blooming, you know, I don't want to lose my personal allowance, you could decide, you know what I'm going to put, I'm going to make use of my full allowance. So I'm going to put £15,000 into my pension for this tax here. And once you put in that 15,000, you get an automatic grows up. What that means is that the government grosses up that money, they will give you 20% gross up gross value. What that means in practice is that if you put in 15k, you're going to get 25 of 15k on top of the money. Now don't be confused. If I say 20k and 20, I say 25. Don't be confused about it is 20 of the gross, which is equal to 25 of the net. Again, I'll give you an example. If you've put in £20,000, the government comes in and says, look, Chimex, you put in 20,000 in your private pension. We've taxed you on this money already because this money is coming out of your pocket. We shouldn't have taxed in the first instance. So here Chimex, take your money back. So what they are doing is actually they are going to give you 25% of the 20K you put into your pension. But they're not looking at it as 20K. They're looking at it as this money was originally 25 000, I'll take a bite out of it. We took 5,000 out of it, so now we're going that 5,000 took out was 20%. 5,000, 20% of 25K. So now we're going to give you back that 20%. But for you, who has put in the money, your sip, you've only put in 20k, so your sip actually grows, your personal patient grows by 25%. Okay, so that's what happens there when you're putting money into your private pension. Now can someone tell me why 20%. Why not 10? Why not 50? Can someone tell me in the chat or come off your mic that the

government assumes your basic taxpayer, basically taxpayer.

Thank you. So the government is basically assuming you're a basic rate taxpayer. They assume everyone's a basic taxpayer. That's the 20%, right? Most people get the 20 and they relax and they're fine. But not you because you know better, because you attended the tax hack. If you're a higher rate taxpayer, you need to claim the extra 20% and that's what you do. Through what method will you claim it back? I know you know. Tell me in the chat or come off your mic like bookie. How will you claim the other 20%? Self assessment. Government has self assessment. Thank you. The government automatically gives you 20%. I always say, note my words, I say automatic, not instant. That means you don't have to do anything about it. If you put money into your private pension, the private pension administrator informs hmrc. HMRC turned around and says hi Karen, sorry, we didn't realize you are going to put this money in your pension. So Here, here's your 20 back which makes basically is 25% of money you contributed. But then you hired a taxpayer so you want the rest of the tax you paid. You get it through self assessment. That's why if you're going to put money in your pension, you want to do self assessment. There are many other reasons you should do self assessment as well. If you're a business owner, if you've got a limited company, if you've got capital gains either from selling a property or from selling shares, if you have side hustles are paying income, especially if it's above a thousand pounds. So many reasons. If you've got rental property, you got to do self assessment. I do self assessment. Whether HMRC ask me to do or not is really important because that's an opportunity to claim back wherever I've not claimed. If you've got like a professional expenses, you can either use my video and claim it through their usual form, I think the pH7 form. But if your professional expenses are above £2,500, then you need to do self assessment to claim it. Okay, Any questions on pension allowance? I'll pause for any questions you have. Any questions, just come off your mic, ask. I might not be able to see the charts. Just come off your mic, ask the question or just crack on.

Today, the self assessment, is it on the gov.uk website?

Good. So self assessment, there's gov UK, my preferred way to do self Assessment. There's a form for self assessment. My preferred way to do self assessment, to use an accountant. Basically. I'll tell you why we know what we want, including self assessment. The accountant knows the forms. I've done self assessment once. I think it was a whole waste of my time. I think I should have used my time much better. But you just have to tick boxes, include what you've spent and all this kind of stuff. So there's a form for self assessment. I could share it in the group but I prefer to use an account that I think it cost me about 240 or 250 every year to do self assessment. And why I prefer that is that if there's a tiny change or dot or whatever the government has changed in self assessment form, the accountant knows they deal with it every single day. I've spoken to my accountant today. And also there's just that second layer of if HMS writes back and says, oh, there's this issue, you've got someone who's dealing with that. So I don't call HMRC on the phone. No, I just forward it to my accountant, say hi, can you sort this out? That way you're maximizing your accountant not for tax strategy alone, but also in filing the paperwork. Now the other reason why it's really important is when it comes to things like thank you Victoria. When it comes to things like trying to remember something here, why not self assessment per se? Deadlines, Some of you are very good and you're very organized but my accountants, they started reminding me seven months deadlines to start reminding me, oh look, hey, you've got to file taxes. Oh, can you send all these document and all that because if you miss the deadline you've got an automatic £100 fine from HMRC. If it's too late then, or if you get your self assessment wrong, you make a mistake, you also get a fine. But the fine then depends on whether they think it's deliberate or whether they think it was done on purpose. But either way there's fine. In fact they've introduced one they call recklessness. They'll say if you, if you make a mistake now they find you for recklessness. So that's why you just want to have that extra layer. An accountant that says, so if you pay an account on 240 or 250, even if it's 300 for the whole year to find your self assessment to avoid any issues. I don't, I don't think it's a waste of money. If you want to do it by yourself. You can do it by yourself. I'll share the form in the group. Group as well. I've done one for my wife, not myself, obviously. I've done one for my wife. This was two, three years ago and it was all right, but it's a waste of time. Self assessment Deadline is usually October 31st. If you're submitting a paper self assessment, if you're submitting electronically, like I hope everyone here will be doing, then January 31st is the deadline.

So I've got a question and I can't find the raise hand option.

Right, go for it.

So I started locoming last year but I'm wondering, can I put money into my NHS pension through my limited company or has that time gone?

Right, so you can print money into your limited company, you can't obviously put it for the taxi that has gone, but you can put it now. So if you put money now into your limited company, it's great. So if you put money into your limited company pension, it's going to count towards the current tax year.

Okay, okay, fair enough.

But that's not, that's not the end of the story. Have you heard of carry forward?

Is this the one you can do for three years?

Thank you. So you can use up your allowance. Like some of you, you hear this and then, oh, I don't know. Actually I've used my allowance last year, last two years. Now I've got plenty of money coming in but I've not used up my allowance and by the time I use up my last, I'll hit 60k. Now all hope is not lost. You can use up the allowance from the last. You can go back three years and use up whatever unused allowance you haven't used. So there you go. So don't worry if you haven't used last year and it's gone. Use what you can use in this here as workout was left from the previous year. So that's basically how much of your, how much do you use up of your pension allowance? That would be basically 60, 000 minus what you used. You can use up all these allowances as well. So you're allowed to do that. Lovely. Right, okay.