Confused over 40% Tax Rate.

exarmydreamer

I have been wondering about this recently and wondered if any of you tax guru's know the answer.

My husband and I are ex army and therefore claim a pension from end of service. Mine is tax free due to injury but hubbies is taxed and will increase at age 55 yrs but at present he is 45 yrs old. He is in a well paid engineering job which has just had a 3% pay increase and he pays into a company pension which his employer matches.

Details as follows:

Husbands pay Basic: £31344.96 (before tax with recent 3% pay rise)
Army pension: £8956.00 (before tax)
Overtime: £2000.00 (roughly as depends on call outs and overtime, after tax)
Has just started working as an Army Cadet Instructor and I have no idea what to add for allowances for summer camp or petrol etc.

I am expecting him to go over the threshold this year. He pays £110.15 into a Centrica Pension which I believe is matched and deducted before tax. He also pays into the Centrica Shares Scheme which is deducted after tax of £125.00 per month, (I'm not sure that's relevant but I'll put it in anyway). His tax allowance is split between his pension and his working pay.

I have read about the 40% deduction having an effect on pension contributions i.e you could benefit more by paying the 40% through your employer but part of his income is from his first pension, so a bit confused.

Do we for instance need to do anything to make the maximum gain?, or is there anything we are missing?. Sorry if this comes across a silly or confused but tax is not something we are familiar with.

I know your all very helpful on here and would appreciate any advice, thank you in advance.:)

xylophone

http://www.hmrc.gov.uk/incometax/relief-pension.htm
http://citywire.co.uk/money/how-to-claim-higher-rate-tax-relief-on-your-pension/a579313
http://www.moneysavingexpert.com/banking/tax-rates

MoneySaverLog

The share incentive plan comes out of gross pay so benefits 40% tax payers so long as you keep the shares for 5 years. Which as its paid monthly is a rolling period.

E.g. Paying £75 for £125 worth of shares at 40% tax but of cause you take the risk in the share price ;-)

exarmydreamer

http://www.hmrc.gov.uk/incometax/relief-pension.htm
http://citywire.co.uk/money/how-to-c...ension/a579313
http://www.moneysavingexpert.com/banking/tax-rates

This second article is interesting to me because my husband pays into a company pension scheme as well as receiving an income from his army pension which is taxed.

Therefore from my understanding should he receive pay and pension which exceeds the 40% tax threshold, he would not have to worry about claiming the extra 20% tax rebate from his 40% tax deduction from his Centrica pay but will have to claim for the 20% rebate from his army pension reductions.

Of course I am aware 'rebate', is not the right word as the extra 20% would automatically go into his state pension pot. Have I understood this correcty?.

I thank you both so much for your advice.

exarmydreamer

The share incentive plan comes out of gross pay so benefits 40% tax payers so long as you keep the shares for 5 years. Which as its paid monthly is a rolling period.

E.g. Paying £75 for £125 worth of shares at 40% tax but of cause you take the risk in the share price ;-)

Thank you, we will be leaving the shares until he reaches 60, then we will stop them and collect on his retirement at 65 yrs, (he should not need to work past that if we plan correctly). This seems the best plan, we would like to spend 1 year following the Moto Gp around the world.:)

CLAPTON

probably best to split his tax allowance so the 8956 is allocated to his army pension so pays no tax on it and the small remainder to his main emplyment
that way he will get his pension contribution tax free at his highest rate

however as he has a third income it will probably need to be resolved fully after year end when all the incomes and any expenses are known

exarmydreamer

CLAPTON wrote: »

probably best to split his tax allowance so the 8956 is allocated to his army pension so pays no tax on it and the small remainder to his main emplyment
that way he will get his pension contribution tax free at his highest rate

however as he has a third income it will probably need to be resolved fully after year end when all the incomes and any expenses are known

Thank you. It would be easier but they are split between the army pension held and administrated by Xfinity and Centrica pension through Norwich Union, but I agree with you it would be simpler to have it come off one.

I guess I will have to wait till his P60 shows up and speak to HMRC at that point. We usually receive end of financial year paperwork from all concerned.

The Army Cadet Instructor pay is a difficult one as I have not seen the format of payments but understand they are done through PAYE and taxed at source. For example he is due to go on the ACF Summer camp, where the instructors receive £55 a day before tax. He only started doing this because one of our sons was so keen to join but has higher functioning Autism which meant he had to join to keep an eye on him. He will also receive refunds from petrol costs, god knows how I show these and what affect on tax they will have.

I really will have to wait till the end of the financial year to resolve this, I think.

CLAPTON

you can ask HMRC to split your allowance any way you want

exarmydreamer

CLAPTON wrote: »

you can ask HMRC to split your allowance any way you want

I had no idea they could do that, I will speak to my husband and maybe have the Centrica Pay take the total tax deduction and nothing from the Army pension. This would make more sense, thanks.

soperman

Under the new auto-enrolment rules, your husband will eventually have to pay in a pension contribution of 4% of salary so now would be a good time to increase the pension contributions to capture the 40% tax relief.