QUESTION around pension payments and higher tax bracket

Harveys_2

Hi could someone help with a question please.

Looking at the following set of figures. How/what does paying into a pension of £1800 a year impact them?

Does it mean the "difference" is bigger: for example 41000-1800 = 39200. Does paying more into a pension lower the gap from the higher tax bracket.

Year 15/16
Salary. £41000 before tax
Higher tax. £42385
Difference. £1385

I hope it makes sense.

jamesd

Standard personal pension contributions increase your basic rate tax band by the gross amount of your pension contribution. So they shift the higher rate threshold up by the amount of the contribution, increasing the difference.

Workplace salary sacrifice pension contributions reduce the earned income, same end result of a wider gap.

Workplace deductions for pensions from gross pay also reduce taxable income or increase basic rate band, same end result.

So yes, the difference almost always becomes bigger as a result of pension contributions.

An exception to that is contributing via workplace pensions and have already paid in so much that you're now in the personal allowance range for taxable income. This is unlikely but it can happen for low earners and sometimes others.

Harveys_2

Thank you jamesd.