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40% tax threshold - saving

Trying to get my head around this to see if its worth saving anymore in my AVC pension.

Salary = £45000
Personal allowance = 9940
Current pension contributions = £3900 (£75 a week)
Taxable earnings = £31660

40% threshold = £32010

Therefore i do not pay 40% tax.

Am i right so far?

But, I also get a bit of extra pay for overtime, bonus etc, which will take my earnings over this threshold so im assuming i do pay 40% tax on my earning over this threshold.

Lets say taxable pay is £34010. Am i right in saying a will pay 40% on the £2000 over the threshold?

So my main question is, if i pay an additional £2000 for example into my AVC pension i will get 40% tax relief and it will only cost me £1200.

Will this be automatically adjusted coming out of my payroll before tax??

Thanks for any advice!

Comments

  • atush
    atush Posts: 18,731 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    It is only auto adjusted for Basic rate tax I think, and you have to contact HMRC about the extra payments and they adjust your tax code.

    Having said this, if it is salary sacrifice that could change things so you'd have to check with HMRC. How do you get higher relief now, do you tell HMRC, or ? I would imagine any extra payments would be treated the same way.
  • jem16
    jem16 Posts: 19,493 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    jonnyb1978 wrote: »
    Trying to get my head around this to see if its worth saving anymore in my AVC pension.

    Salary = £45000
    Personal allowance = 9940
    Current pension contributions = £3900 (£75 a week)
    Taxable earnings = £31660

    40% threshold = £32010

    Therefore i do not pay 40% tax.

    Am i right so far?

    Correct.
    But, I also get a bit of extra pay for overtime, bonus etc, which will take my earnings over this threshold so im assuming i do pay 40% tax on my earning over this threshold.

    Lets say taxable pay is £34010. Am i right in saying a will pay 40% on the £2000 over the threshold?

    Correct again.
    So my main question is, if i pay an additional £2000 for example into my AVC pension i will get 40% tax relief and it will only cost me £1200.

    Will this be automatically adjusted coming out of my payroll before tax??

    If your AVC payment is taken from gross pay then you will receive full tax relief at that point.

    If your AVC is taken from net pay, you would pay in £1600 and basic rate tax relief would be added by the provider. You would then need to claim the extra 20% from HMRC.
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
    10,000 Posts Combo Breaker
    personal allowance is 9440 for tax year 2013-14
  • jem16
    jem16 Posts: 19,493 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    CLAPTON wrote: »
    personal allowance is 9440 for tax year 2013-14

    Well spotted!
  • jonnyb1978
    jonnyb1978 Posts: 1,362 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    Thanks. The figures are mainly for example purposes anyway. As long as im on the right track.

    Another question.
    If my taxable pay will be dead on the 40% threshold for the year, I will pay 20% tax. If I do increase pension contributions by say £100 a month but also do a bit of overtime every other month taking my yearly taxable pay over the 40% threshold by £2000. Will I get 40% relief on the whole £1200 pension contributions over the year or just the months that go over the threshold.

    Basically some months will be a flat salary below threshold.
    Some month with overtime above threshold.
  • jem16
    jem16 Posts: 19,493 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    jonnyb1978 wrote: »
    If I do increase pension contributions by say £100 a month but also do a bit of overtime every other month taking my yearly taxable pay over the 40% threshold by £2000. Will I get 40% relief on the whole £1200 pension contributions over the year or just the months that go over the threshold.

    You will only get 40% tax relief on the amount you would pay 40% tax on.

    Also remember that your tax is not looked at as each month in isolation. It is worked out cumulatively over the whole tax year.
  • jonnyb1978
    jonnyb1978 Posts: 1,362 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    Thank you:)
  • jem16 wrote: »
    If your AVC is taken from net pay, you would pay in £1600 and basic rate tax relief would be added by the provider. You would then need to claim the extra 20% from HMRC.

    So would this mean the extra 20% relief is paid to you as a rebate after completing a self assessment form, as you have effectively overpaid tax via PAYE?

    Also I suppose non ISA savings income is added on when working out if you're over the 40% threshold?

    Thanks for any help.
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