Pension Help

stringer_bell

Hello Everyone,
I've got the investing bug, my ISA's will be maxed out soon and I want to invest more, someone said if you havent contributed to your pension yet, then you should do.

I'm 27, self employed sole trader and doing quite well ( so far ). Since April 2011 I've made 124k, so probably will hit 50pc tax bracket within this tax year, but who knows, this could change next year. I could earn more, I could earn less. Anyone know how much I can pay into a pension this year? I have never contributed to a pension before.

If I make say 250k this year, and contribute 50k, will I be only taxed on 200k?

Any recommendations for a good online platform, preferably cheap with no massive charges?



Also, I think I have this right. Whenever I make a contribution, the goverment will top this up. If I invest money into an online platform, do the goverment pay this into the online platform for me to invest or do I have this totally wrong?

Sorry this is so winded!

dunstonh

I'm 27, self employed sole trader and doing quite well ( so far ).

I dont know if you are aware of this but the self employed get lower state pensions than the employed. The difference equates to around £120,000 in a personal pension if you want to make up the same benefits.

Anyone know how much I can pay into a pension this year?

£50,000 but you can bring forward some past years allowance as well if you do that.

If I make say 250k this year, and contribute 50k, will I be only taxed on 200k?

Yes.

Any recommendations for a good online platform, preferably cheap with no massive charges?

All platforms are generally around the same price nowadays. Obviously certain differences depending on what services you want and what types of investments you intend to hold on the platform. e.g. some may be more focused on a range of Unit trusts/OEICs as they are paid commission from the fund house whilst others will rebate commissions and charge you explicitly and offer the full market place and all traded stocks.

Also, I think I have this right. Whenever I make a contribution, the goverment will top this up.

In simple terms, if you make a £50,000 contribution, you write the cheque out for £40,000. Then when your accountant does your tax return, they deduct a further £10,000 from your tax bill to take into account higher rate tax relief (or additional rate if you happen to get into that band).

stringer_bell

dunstonh wrote: »

In simple terms, if you make a £50,000 contribution, you write the cheque out for £40,000. Then when your accountant does your tax return, they deduct a further £10,000 from your tax bill to take into account higher rate tax relief (or additional rate if you happen to get into that band).

I'm thinking of contributing around £3000 a month for now. Does this have to be a cheque or can these sites accept card payments?

dunstonh

stringer_bell wrote: »

I'm thinking of contributing around £3000 a month for now. Does this have to be a cheque or can these sites accept card payments?

Up to the platform in question. Direct debit, bank transfer, cheque, debit card are all options which some will offer.

stringer_bell

dunstonh wrote: »

Up to the platform in question. Direct debit, bank transfer, cheque, debit card are all options which some will offer.

Great. If I do put in £3000 a month, I read that they add the 20 percent relief automatically, is that added to my online platform account automatically, or end of tax year?

atush

I would imagine automatically but I don't have one of these. Something to ask the company when you are deciding who to go with.

As a side note, have you got a good acct? If you are making big money, you might be better off tax wise as a limited company and paying yourself part salary and part in dividends to lower your tax, NI etc. Something elseto look into perhaps?

dunstonh

stringer_bell wrote: »

Great. If I do put in £3000 a month, I read that they add the 20 percent relief automatically, is that added to my online platform account automatically, or end of tax year?

They do not add 20% automatically. If you are looking at it back to front. If you look at it your way then they add 25%. Pensions are viewed as GROSS contributions. You pay the net (of basic rate) amount which is 20% lower.

Some platforms will give you the tax relief straight away. Others will make you wait until they have received it from HMRC (which can be a few months)

gadgetmind

dunstonh wrote: »

£50,000 but you can bring forward some past years allowance as well if you do that.

Carry Forwards can only be used for years in which you were in a registered pension scheme. You didn't even need to be contributing, just in the scheme, but no scheme in the year, no carry forwards.

gadgetmind

stringer_bell wrote: »

Great. If I do put in £3000 a month, I read that they add the 20 percent relief automatically, is that added to my online platform account automatically, or end of tax year?

It varies.

Note that if you put in £3000pcm, HMG will add another £750 and you then claim £750 back on your tax return if a 40% tax payer and (I think!) £1125 if higher rate. Gross going into your pension will be £45k for all cases, which is close to the £50k limit. If you exceed that limit, you get a nasty tax charge.

You really need to be speaking to a good accountant and/or tax adviser with these income levels as you could use a SIPP in future years that holds some commercial property, and this can even be your business premises. You could also consider Enterprise Investment Schemes and Venture Capital Trusts. These are high risk but it sounds like you can afford risk with some of your income.

gadgetmind

Oh, and if you're operating via a limited company, wouldn't you be better getting income as dividends?

Yes, start a pension, but also get some good tax advice!

mania112

Earnings of £250,000
minus your pension contributions £50,000
minus tax allowance of £7,475

total taxable sum at the end of the year of £192,525.00

you'll pay at the end of the year 20% tax on the first £27,525 (because we've already taken out the allowance)

you'll then pay 40% on the next £107,525

and you'll pay 50% on the rest

- this is after you made your deductions of course.

Back to the pension - HMRC will top up your pension to £62,500 (20%) and you'll get a rebate for the extra amount (because you're not a basic rate taxpayer) at the end of the year which WILL GET PAID BACK TO YOU, NOT THE PENSION.