New Tax & Pensions

sabelu

Previously on the border of 40% tax feel I gonna now be included does this mean i lose on tax but gain on tax relief on my pension contributions?

kidmugsy

You might consider contributing a bit more to your pensions so that you avoid 40% tax altogether. That way you'll get the advantage of the larger personal allowance but no disadvantage at the 40% rate.

sabelu

kidmugsy wrote: »

You might consider contributing a bit more to your pensions so that you avoid 40% tax altogether. That way you'll get the advantage of the larger personal allowance but no disadvantage at the 40% rate.

But surely if i wanted to add a lump sum i would lose out on the 40% relief?

thenudeone

You can only get tax relief if you've actually paid the tax (with an exception for contributions of up to £3600 gross pa which gain tax relief even if you haven't paid any tax).

The pension contribution effectively takes the top slice of your income away

So if someone earning £50k wants to put £1000 into their pension they only have to pay £600 for it (they pay a cheque for £800, and they get £200 back from hmrc later); because the tax they've paid on that earnings was 40%

If someone earning £30k wants to put £1000 into their pension they have to pay £800 for it; because the tax they've paid on that earnings was 20%.

In both cases the people have earned £1000 from their employer and that's what has ended up in their pension fund.

But you can only "get relief" for as much tax at 40% as you've actually paid in the year.

If you're near the borderline and considering making a large contribution, it would be wise to consider phasing contributions across tax years carefully in order to reduce the overall net cost to you; although it's possible that you'll lose out if the tax relief is meddled with again in future years.

CLAPTON

you pay 40% if you earn more than 42,475 after pension contributions have been deducted

so for example if you paid 5,000 (gross) into your pension then you could earn 47,475 before paying 40% tax

the 40% tax is only paid on the amount over 42475

maybe post your figures and we can explain how it works for you.