Pension Tax Relief

mattrobbo99

I have a full time job and I pay tax via PAYE. I have also recently taken on a consultancy second job earning about 20k pa. I'll do a self assessment to pay tax on the second job and it will all be taxable at the higher rate.

If I start a private pension and pay in 6k pa, then when would be the approximate amount I should put away for my annual tax bill?

My thoughts are that on 20k, I should put away £5880. 20k-6k tax relief = 14k taxable pay - 42% tax and NI.

Would this be about right?

bigadaj

Unless you have exact figures then that's about right, assuming you only pay base rate in your main job and higher rate on your additional job, this obviously isn't going to be exactly the case.

The £6k pension contribution only costs you £3600 because if the tax relief, if you contribute £6k of your money then £10k goes into the pension, and your tax reduces.

Probably worth letting hmrc know of your second job sooner rather than later. There's obviously debate about employment or self employment with some jobs so confirming that with them would be wise.

mattrobbo99

Thanks for the info. A long a the figures are approximately right, then it would be ok.
The second job is for a company in China with no base in UK, so it would definitely be self-employed

mattrobbo99

£10k goes into the pension, and your tax reduces.
Shouldn't that read
£10k goes into the pension, OR your tax reduces.
You don't get an extra 40% in the pension and also a reduced tax bill, do you?
pay from my other job is around 55k if that makes any difference?

CLAPTON

just for the record

if you actual pay 6k into a pension then the pension provider will add back the 20% tax so actually 7,500 goes into the pension
via the tax system you reclaim the other 20% so the overall effect is that
your pension benefits by 7,500
it actually costs you 4,500

bigadaj

mattrobbo99 wrote: »

£10k goes into the pension, and your tax reduces.
Shouldn't that read
£10k goes into the pension, OR your tax reduces.
You don't get an extra 40% in the pension and also a reduced tax bill, do you?
pay from my other job is around 55k if that makes any difference?

So if your total gross income is £75k then there is the opportunity to pay in over £30k into pension and get 40% tax relief, so only paying £18k yourself for that level of contribution.

You might also benefit from employer contributions in your first job for example, so could pay more into this as it's your total earnings tags count and you can pay from either job.

richbeth

mattrobbo99 wrote: »

I have a full time job and I pay tax via PAYE. I have also recently taken on a consultancy second job earning about 20k pa. I'll do a self assessment to pay tax on the second job and it will all be taxable at the higher rate.

If I start a private pension and pay in 6k pa, then when would be the approximate amount I should put away for my annual tax bill?

My thoughts are that on 20k, I should put away £5880. 20k-6k tax relief = 14k taxable pay - 42% tax and NI.

Would this be about right?

Hi,
one complicating factor, is your second job as a PAYE employee or self employed as a contractor ? if the latter do you know if your contract is inside or outside IR35 ?

If your a contractor inside IR35 then your income may be subject to NI for BOTH employer and employee so an extra 12 % will be payable and it probably won't be as simple as just declaring extra income.

Richard

fairleads

bigadaj wrote: »

So if your total gross income is £75k then there is the opportunity to pay in over £30k into pension and get 40% tax relief, so only paying £18k yourself for that level of contribution.

You might also benefit from employer contributions in your first job for example, so could pay more into this as it's your total earnings tags count and you can pay from either job.

Contributing more than 26.5K nett sees anything above this amount benefiting by only 20% taxrelief - for tax year ending 2015 that is.

bigadaj

fairleads wrote: »

Contributing more than 26.5K nett sees anything above this amount benefiting by only 20% taxrelief - for tax year ending 2015 that is.

Take your point and you're correct but wouldn't there be no tax relief as the annual limit has been reached?

fairleads

bigadaj wrote: »

Take your point and you're correct but wouldn't there be no tax relief as the annual limit has been reached?

In the example given the gross pension contribution comes in at just under the 40k cap