Pension Calculation help!

savlad

I'm a higher rate tax payer and am trying to work out how to calculate how to ensure all of my income that would be taxed at 40% is going into my pension.

Here are the rough stats:

Gross income £55,000
Total income charged at 0%/20% tax rate - £43,875

total income therefore taxed at 40% - £11,125
nett individual pension contributions ytd - £2,500

I am getting very confused as to how to calculate exactly how much i need to top up at nett to put into the pension to ensure that all 40% income is saved tax free?

Any maths gurus out there?!!!

Loughton_Monkey

Total income taxed at 40% = £11,125

Hence, to save all of this, total 'gross' pension contribution must = £11,125

Net pension contribution to date = £2,500 [20% tax relief granted at source]
Therefore, 'gross' contribution to date = £3,125

Required 'gross' contribution = £11,125
Therefore addition 'gross' contribution = £11,125 less £3,125 = £8,000

Hence if you contribute another £8,000 less 20% = £6,400 then the required 'total' [including automatic 20% tax] will be £11,125. At the end of the tax year, there will be an additional 20% relief on the £11,125 thus nullifying the 40% tax.

To be on the safe side, add a bit more, since almost certainly you are receiving a bit of savings interest (taxed at 20%) on which you must also pay 40% tax.