minimising 40% tax liability by pension contribution

nearlyrich

I have a pension scheme which offers salary sacrifice and a matched contribution up to 10% which I am currently taking advantage of. I can afford to contribute more that 10% at the moment and would like to know if anyone has a method of calculating what I can pay in to minimise 40% liability.


Also can I pay in more for the last tax year or has that door shut now?


I am 53 and plan to stop full time work at 55 so the money would be available to me in under 2 years so that's not an issue I also have ISA savings to get me through to state pension age and a couple of paid up pensions from other employments.

purdyoaten

Without details of salary it is impossible to say I am afraid.

nearlyrich

purdyoaten wrote: »

Without details of salary it is impossible to say I am afraid.

It varies as I get bonus payments which depend on performance and other factors but average over last few years is around 65k gross my tax liability at 40% for 2013/14 was £9007.60 ( I have company car fuel and medical insurance classed as benefits which add around 10k to the pre tax salary)

purdyoaten

For ease, I shall assume that your BIK wipes out your personal allowances. Anything over £31865 in taxable earnings attracts tax at 40% - you have, therefore, considerable scope.

65k gross is 58.5k taxable after pension contributions. A gross pension contribution of up to £27k - ish will all attract tax relief at 40%.

Obviously I do not know your personal circumstances. If your salary prevents you from claiming child benefit, for example, I would be ensuring that you try to bring your salary, after pension contributions, plus your BIK is below £50k if that is possible.

nearlyrich

Thanks Purdyoaten I have long finished with child benefit so I am just working to top up the retirement savings. Do you know if it's too late to commit extra for last year?


You are correct about the BIK wiping out my personal allowances and some

Notfarfromtheborder

Think you can use up the last three years allowances between the maximum allowed, currently £40K and what you paid in each year.

Just looking into it myself, have meeting on Tuesday with pension advisor to discuss

fizio

I am in a similar boat and have been able to afford to put in the max 50/40k into salary sacrifice over the past few years and, given the pension changes in thsi years budget, I'm glad I have done it. If you don't need the cash then its hard to get a better return than 40% tax discount plus NI discount

atush

2% on top for those in the HRT band. So 42% tax saved?

32% tax saved on BR income below that. So fill your boots with the last 3 years excess allowance I say!

Spidernick

Although you can make use of unused allowances for earlier years, it's the year you make the pension payment that is important. You cannot get tax relief relating to 13/14 for payments made in 14/15, for example (which I think is what you are asking). From that point of view the unused relief is probably not much use to you at present, if you are solely looking to wipe out your 40% tax band. You can do that with your annual £40,000 limit (although remember that this limit will include the employer contributions as well).

Smart pensions are also better, so hopefully your employer's scheme is a smart pension scheme, which will give toy a 2% NI saving, in addition to the 40% tax rate.

nearlyrich

Spidernick wrote: »

Smart pensions are also better, so hopefully your employer's scheme is a smart pension scheme, which will give toy a 2% NI saving, in addition to the 40% tax rate.

I get the Employers NI credited along with their contribution...

Spidernick

nearlyrich wrote: »

I get the Employers NI credited along with their contribution...

A share of it, I would imagine, rather than the whole lot.

The reason employers like Smart pensions so much is that their NI saving is 13.8%. A 40% taxpayer would only get 2% NI relief as an extra for opting for the Smart pension route, which is why many employers will give the employee some of their saving as an added sweetener.