SIPP/Tax question

kidmugsy

£45500 - £41140 (is that right, folks?) = £4360 gross.
You actually pay in £4360 x 0.8 = £3488. To that the taxman will add £872 in the provider's hands, and the other £872 is claimed back by you when you do your tax returns (or by phoning and asking for the right form to complete).

That assumes that you have no other taxable income e.g. interest from your savings.

jem16

Trumpeter wrote: »

I see there is a bit of disagreement over this so would it help if I quoted the actual figures?

It would - yes. However to be absolutely sure you would also need to include gross savings interest, gross dividend payments plus any taxable benefits as this all counts as taxable income. If you have made any Gift Aid payments you can then deduct that gross amount.

My taxible earnings for this year (after payments into my company pension scheme) are £45500 so how much would I need to contribute to reduce my tax liabilities to below the higher rate?

TIA

Taking it solely on those figures, it would be £45,500 minus £41,450 which is £4050 gross payment needed.

If you then intend to pay into a SIPP or PP as opposed to an AVC via your salary, you would then contribute £4050 * 80% which is £3240. The basic rate tax relief of 20% (£810) is then added on by your pension provider to make it up to £4050.

You would then contact HMRC and claim the other £810 (20% tax relief) which means that your contribution has only cost you £2430. If you do not normally complete a tax return, HMRC would normally adjust your tax code especially from next year but you could ask for an actual rebate if your prefer.

jem16

kidmugsy wrote: »

£45500 - £41140 (is that right, folks?) = £4360 gross.

Almost - it's £41,450 and not £41,140 for this tax year.

Trumpeter

Thank You all...

kidmugsy

jem16 wrote: »

Almost - it's £41,450 and not £41,140 for this tax year.

You can see who isn't terribly close to the Higher Rate Threshold around here.

Triumph13

One final question - what do you eventually intend to do with the extra money you are contributing?

If your plan is to be able to retire early, then the free standing pension is a great route as you can live on this pension for a while to avoid having to have your final salary pension reduced so much for taking it early.

On the other hand, if you have no intention of going early and intend just to have some extra money on top of your DB when you do retire, then it may be better to put it into an AVC linked to your DB scheme if the scheme allows the two pots to be considered together in calculating the 25% tax free lump sum and to then take it all from the AVCs

Trumpeter

Triumph13 wrote: »

One final question - what do you eventually intend to do with the extra money you are contributing?

If your plan is to be able to retire early, then the free standing pension is a great route as you can live on this pension for a while to avoid having to have your final salary pension reduced so much for taking it early.

On the other hand, if you have no intention of going early and intend just to have some extra money on top of your DB when you do retire, then it may be better to put it into an AVC linked to your DB scheme if the scheme allows the two pots to be considered together in calculating the 25% tax free lump sum and to then take it all from the AVCs

I'd really hope to be able to retire early after a lifetime of working shifts in heavy industry (which is probably a good clue to which of the few remaining FS schemes that I'm in!)

If possible, I'd like to get enough put by to be able to go at 56 or 57 then defer taking my main pension until 60 when there would be no penalties.

I suppose that the big question is knowing just how much is "enough" At the moment, every little helps.

kidmugsy

Trumpeter wrote: »

I'd really hope to be able to retire early after a lifetime of working shifts in heavy industry (which is probably a good clue to which of the few remaining FS schemes that I'm in!).

Ah, the BBC.