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40% Taxpayer - how much into Sipp

Looking for pointers please.

Looking to start an additional pension and put my salary that is subject to the 40% tax rate into it.

Currently earning £48k - how much should I be thinking about putting away?

Thanks in advance for your help.
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Comments

  • Perelandra
    Perelandra Posts: 1,060 Forumite
    Do you know your tax code? (shown on a payslip, or a letter from HMRC)
  • MinMoz
    MinMoz Posts: 156 Forumite
    No, dont have one to hand. Payslips all computerised now.

    Was just looking for a rough idea as I am getting a little confused by it.
  • bigadaj
    bigadaj Posts: 11,531 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper
    Ballpark is eight grand assuming you have a full allowance. You need to dig out your payslips and work it out though, pretty simple and bands are on hmrc website.
  • MinMoz
    MinMoz Posts: 156 Forumite
    So, hypothetically then assuming anything earned over 41k is subject to the 40% -

    I would put in £5.6k (£7k x 80%) as 20% would be added by the government.

    Then after the end of the tax year I would claim the other 20% by filing my tax return for that year.

    Or do I put in the full £7k and then reclaim the 40%?

    Apologies for appearing idiotic here!
  • lvader
    lvader Posts: 2,579 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    You can simply get in touch with HMRC and they can change your tax code so that you essentially get the full tax reilef straight away.
  • Perelandra
    Perelandra Posts: 1,060 Forumite
    Yes, you have it.

    The total that should "end up" in your pension should be:

    Salary minus £41,450

    So on a salary of 48k, that's 6,550. You need to put in 5,240. It will be grossed up to the 6,550 at the basic rate

    You can then either wait until you do a tax return or, as Ivader says, ring up HMRC to let them know what you're doing. Once you convince them it's a private pension ( :) ) they will alter your taxcode, so that you reclaim the additional "20%" via reduced PAYE tax.
  • ukjoel
    ukjoel Posts: 1,468 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    You say your earning 48k but does that include all benefits.

    Things like company cars, health insurance, bonuses, etc can easily push your number significantly beyond just the salary.
  • ukjoel
    ukjoel Posts: 1,468 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    Also worth checking out salary sacrifice.
    Benefit is that there is no faff with hmrc as its all taken out pre salary, and some companies then top it up with another 11% as they dont need to pay NI contribution on this money.

    Downside is less flex that SIPP, plus it may make it harder to obtain mortgages as your salary will appear less than it is.
  • mania112
    mania112 Posts: 1,981 Forumite
    Part of the Furniture Combo Breaker
    edited 28 September 2013 at 11:11PM
    Worth pointing out that you shouldn't be contributing into a pension to save on the tax man getting your 40% money.

    You should contribute the RIGHT amount including ensuring your day to day costs remain affordable.

    Sure, moving your 40% salary into a pension is a good way to reduce the tax bill (and you'll be in profit if you're a basic rate taxpayer in retirement) but don't forget 100% of your money is being put away now until at least age 55.
  • bigadaj
    bigadaj Posts: 11,531 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper
    mania112 wrote: »
    Worth pointing out that you shouldn't be contributing into a pension to save on the tax man getting your 40% money.

    You should contribute the RIGHT amount including ensuring your day to day costs remain affordable.

    Sure, moving your 40% salary into a pension is a good way to reduce the tax bill (and you'll be in profit if you're a basic rate taxpayer in retirement) but don't forget 100% of your money is being put away now until at least age 55.

    Though for many people it considered to be one way of limiting spending and also Alsace where it can't be accessed for short term spending needs.
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