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pension contribution to avoid tax, prior tax year
noggin1980
Posts: 419 Forumite
Hi, my wife earns about 40k from one job, about 12k from another and we have some money lent out too, She has paid 20% tax on both job incomes taken automatically and no tax on the money we have lent (which we presumably owe 40% on).
We will of course be filling in a self assessment tax return and I think this means we are going to owe about £5k for the tax year just gone.
Is it possible for us to avoid paying that £5k tax by putting enough money into a pension to avoid being in the higher bracket even though the tax year is now over? I know you are allowed to carry over unused allowances from the last 3 years but does that mean we can still use last years allowance for last year? Or can we only use it this year if we wanted to put more than normal yearly limit in?
Did we need to put the money in to the pension last year in order to claim it on the tax return?
Thanks
We will of course be filling in a self assessment tax return and I think this means we are going to owe about £5k for the tax year just gone.
Is it possible for us to avoid paying that £5k tax by putting enough money into a pension to avoid being in the higher bracket even though the tax year is now over? I know you are allowed to carry over unused allowances from the last 3 years but does that mean we can still use last years allowance for last year? Or can we only use it this year if we wanted to put more than normal yearly limit in?
Did we need to put the money in to the pension last year in order to claim it on the tax return?
Thanks
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Too late now to make it take effect for the previous tax year.0
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noggin1980 wrote: »...and we have some money lent out too ... no tax on the money we have lent
What do you mean by money you have lent? What are the specifics?0 -
citricsquid wrote: »What do you mean by money you have lent? What are the specifics?
We borrowed extra on our mortgage to help a family member, when that money was returned we had tens of thousands of pounds that we were not able to give back to the mortgage company at that time so it was lent out to a property developer through my father in laws company, it's providing 20% interest, while I've not yet looked at the self assessment form I assume this will be classed as income and we'll have to pay 40% of it as tax.0 -
Depending on your pension arrangements and income you could avoid the tax on the loan by contributing to your pensions including making use of the unused annual allowances from previous years.Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.0
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Depending on your pension arrangements and income you could avoid the tax on the loan by contributing to your pensions including making use of the unused annual allowances from previous years.
Not true.
The maximum you are allowed to contribute to a pension is 100% of income in that tax year, up to a maximum of £40k (or the cap in that year).
It is not possible to carry back any contributions into a previous tax year and amend the tax calculation for that year. It used to be possible many years ago when contribution limits were much much lower than 100% of income, but not now.
If you reach the £40k cap, then you can usually carry forward any unused cap from previous tax years but your contribution must still be within 100% of your income in the current tax year.
Even if you do this, your contributions will only affect the current tax year's tax calculation and will not affect tax calculations from any year where you carry forward any unused cap.We need the earth for food, water, and shelter.
The earth needs us for nothing.
The earth does not belong to us.
We belong to the Earth0 -
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thenudeone wrote: »Not true.
The maximum you are allowed to contribute to a pension is 100% of income in that tax year, up to a maximum of £40k (or the cap in that year).
It is not possible to carry back any contributions into a previous tax year and amend the tax calculation for that year. It used to be possible many years ago when contribution limits were much much lower than 100% of income, but not now.
If you reach the £40k cap, then you can usually carry forward any unused cap from previous tax years but your contribution must still be within 100% of your income in the current tax year.
Even if you do this, your contributions will only affect the current tax year's tax calculation and will not affect tax calculations from any year where you carry forward any unused cap.
Thanks I suspected this would be the case but hoped that the tax calculation hadn't actually happened yet because it wasn't time to hand in the tax return, I was hoping since we had only contributed a tiny percentage of income into our pension last year and not yet filled in the tax return we'd be able to put say 15k in then fill in the tax return and not have the 5k tax bill to pay. Oh well, thanks for your help.0 -
Depending on your pension arrangements and income you could avoid the tax on the loan by contributing to your pensions including making use of the unused annual allowances from previous years.thenudeone wrote: »Not true.
The maximum you are allowed to contribute to a pension is 100% of income in that tax year, up to a maximum of £40k (or the cap in that year).
I see no mention of the OPs income in the current tax year or the amount of cash he/they have from the repaid loan that could be used to buy pension which is why I said "Depending on your pension arrangements and income ". Clearly it is capped by his/their income this tax year.It is not possible to carry back any contributions into a previous tax year and amend the tax calculation for that year. It used to be possible many years ago when contribution limits were much much lower than 100% of income, but not now.
Where did I say "carry back"? amend calculations?If you reach the £40k cap, then you can usually carry forward any unused cap from previous tax years but your contribution must still be within 100% of your income in the current tax year
Which is what I said.Even if you do this, your contributions will only affect the current tax year's tax calculation and will not affect tax calculations from any year where you carry forward any unused cap
Did I not say this?
I am happy for you to correct me if I am wrong but I did not say what you claim. The OP/patrtner has cash in the current year and his wife alone seems to have an income of £52K.
https://www.gov.uk/tax-on-your-private-pension/annual-allowanceFew people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.0 -
I think there is some confusion sorry
For the 2014/15 tax year for which we are yet to submit a tax return she has put £1200 into her pension and her company about £2500, so there was plenty of room to add more, I wondered if it was too late to do so. Which it seems to be.
We've now dramatically increased her monthly contributions so that she won't pay 40% tax in this tax year.0
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