Money into pension or not?

mmmkay777

Hi, thanks in advance. I'm lucky enough to be coming into some money soon. I will be able to afford to put approx £10,000 into an investement of some kind. I was potentially going to put it into a pension pot. Last year I had a job and earned over the higher threshold on tax, I know have a job and earn £40,000 before tax. So my question is if I put the £10000 into a pension I would only be eligible for standard pay tax relief? If I had done it last year (which wasn't possible) I would have been eligible for higher rate pension tax relief? What should I do, invest it in something else and wait until my gross wage gets higher than the higher rate tax band and then invest it?

Thanks

bigadaj

You'd only get higher rate tax relief on the portion of earnings on which you pay higher rate tax, so if you were only say £1000 above the higher rate threshold you could only claim £200 additional tax relief.

You could save it and wait until you go back above the higher rate threshold, but you would be tax on the interest or dividends on this investment which could push you into higher rate; if this was ina. Pension it wouldn't be taxed at all.

You used to be able to carry back to a previous tax year but I think this has been stoppe, do you currently have a pension you contribute to, if so how much and are there employer contributions?

mmmkay777

Hi thanks for the reply, that's a shame. The only pension I have is a SIPP which I've only put in a few hundred pounds.My wage last year was 55000 so looks like bad timing of things, but can't be helped.

atush

yes, bad timing but paying into a pension now is still important.

Does your work offer a pension and have you joined it? If not, they soon have to, when will yours start?

Do you have other savings and investments? If so, then you may want to split your 10K into pension and S&S Isas. If not, then you may want to save some cash in ISAs as a safety net and join your work pension.

saintalan

bigadaj wrote: »

...
You used to be able to carry back to a previous tax year but I think this has been stoppe, do you currently have a pension you contribute to, if so how much and are there employer contributions?

You may want to look at this from HMRC

I came across it yesterday and not sure I got it right, but in my case I have a £3600 gross limit but it seems to say I can also use the 3 previous years.

You will have to dig thru the sub links but it is all there, let me know your reading of it.

Cheers

Alan

kidmugsy

mmmkay777 wrote: »

What should I do, invest it in something else and wait until my gross wage gets higher than the higher rate tax band and then invest it?

Thanks

That's a sound idea; a cash ISA and a Stocks and Shares ISA would be good homes while you wait for your opportunity. That's assuming you've rid yourself of any expensive debt first.

AlwaysLearnin

Hopefully this is prompted by a wider review of your financial plans and not just to get the tax benefit for this single £10k (or protect from spending...). In practice, a pension pot of a "few hundred pounds" plus £10k is going to provide a tiny amount in retirement, especially if you are accustomed to spending your current levels of income. This then should/needs to be just the start (unless you're saving big elsewhere)

Everyone has to start somewhere though. All the best in preparing for a comfortable old age.

jamesd

Since you expect to be a higher rate tax payer fairly soon it is better to invest the money inside a stocks and shares ISA until you are one. This way you get the same investment growth immediately but will then benefit from the higher pension tax relief later.

Don't just go ahead and use the pension now when a little patience will double the tax relief without losing you anything.