Income tax question

daverave7

Hi,

Im trying to figure out when I will hit the 40 % tax bracket! My Pension is taken off before tax to give my "gross taxable" salary. Will I start to pay 40 % tax when (i) my gross taxable salary exceeds the threshold or (ii) my total salary (i.e. gross taxable plus pension contribution) exceeds the threhold?

Thanks!

ceeforcat

The first option when it exceeds £43875 currently.

daverave7

ceeforcat wrote: »

The first option when it exceeds £43875 currently.

Cheers. So, when my total salary does increase, I could (in theory) start paying AVC's in to my pension and keep my salary in the lower tax bracket?

CLAPTON

daverave7 wrote: »

Cheers. So, when my total salary does increase, I could (in theory) start paying AVC's in to my pension and keep my salary in the lower tax bracket?

indeed so or indeed into any pension product, many people do this:

however do realise that you only pay 40% on the excess over 43,875


and normally the gross salary usually means just that (i.e. the biggest number on your payslip) and the amount less pension is usually referred to as taxable even though some will be tax free.

..confusing isn't it?

Flyboy152

Your taxable income is everything, excluding pension contributions, tax free expenses and tax allowances.

daverave7

Flyboy152 wrote: »

Your taxable income is everything, excluding pension contributions, tax free expenses and tax allowances.

I also claim child benefit but will lose this in 2013 if I'm a higher tax payer. But I could stay under the 40 percent threshold by paying avcs and I assume I will then be eligible for child benefit?!

Flyboy152

daverave7 wrote: »

I also claim child benefit but will lose this in 2013 if I'm a higher tax payer. But I could stay under the 40 percent threshold by paying avcs and I assume I will then be eligible for child benefit?!

Yes you can. It is the advice of many accounts tha you should maximise your pension contributions to reduce your tax liability and to bring below the threshold for higher rate tax. However, be careful about bringing it down too low, if you bring it below the higher rate threshold, you won't get full high rate relief on your contributions.

CLAPTON

Flyboy152 wrote: »

Your taxable income is everything, excluding pension contributions, tax free expenses and tax allowances.

HMRC use the term taxable income as including tax allowances i.e. the basis for the tax calculation which starts with deducting the tax free allowance

Flyboy152

CLAPTON wrote: »

HMRC use the term taxable income as including tax allowances i.e. the basis for the tax calculation which starts with deducting the tax free allowance

Yes I know that, I was simplifying it for greater clarity for the OP.