Considering transferring Investment money into Pension - is this wise?

JamTomorrow

jem16 wrote: »

It not only limits the 40% tax relief but also limits your total tax relief.

So with £97k, only £54k approximately will get higher rate tax relief and the rest 20%.

Thanks, great help.

So effectively in the 15/16 tax year, and assuming £97k income per P60, I would make an additional one-off contribution of £39k on top of the £15k gross I have already made.

This would require me to send ~23.5k to my SIPP provider whom would automatically add 20% (£7,800) but I would need to claim the additional 20% as a higher rate tax payer.

How do I go about getting the higher rate extra 20%? Is it a phone call/form to HMRC? Can I do this mid year even though I haven't effectively paid as much in higher rate tax as what I would be claiming back or do I need to wait until March 16 to do this?

Similarly jem16 do I get the CB reinstated via a phone call to HMRC and will I get a one-off retrospective payment to catch up for the past 6 months or a true-up in the CB payment for the next 6 months of the CB payment? Again, do HMRC need to wait until the end of the tax year to see that I really am below the £50k CB limit?

Thanks.

jem16

JamTomorrow wrote: »

Thanks, great help.

So effectively in the 15/16 tax year, and assuming £97k income per P60, I would make an additional one-off contribution of £39k on top of the £15k gross I have already made.

Correct.

This would require me to send ~23.5k to my SIPP provider whom would automatically add 20% (£7,800) but I would need to claim the additional 20% as a higher rate tax payer.

Not quite. You would send 80% of £39k which is £31,200. Your pension provider would then add the £7800 and you claim the other £7800 back from HRMC so the effective cost is £23,400.

How do I go about getting the higher rate extra 20%? Is it a phone call/form to HMRC? Can I do this mid year even though I haven't effectively paid as much in higher rate tax as what I would be claiming back or do I need to wait until March 16 to do this?

It can be through a tax return or by phoning HMRC who will adjust your tax code. You don't need to wait until the end of the tax year to phone provided you know actual figures of your total income. Remember to give them the full gross figure and not the net figure that you will pay in.

Is the other £15k paid from your gross salary and therefore reduces your taxable income? Remember to allow for that when you give HMRC figures.

Similarly jem16 do I get the CB reinstated via a phone call to HMRC and will I get a one-off retrospective payment to catch up for the past 6 months or a true-up in the CB payment for the next 6 months of the CB payment? Again, do HMRC need to wait until the end of the tax year to see that I really am below the £50k CB limit?

I don't think it's HMRC you call to start claiming Child Benefit again. I would think it's the department that deals with Child Benefit claims that you would need to contact. I suspect the payments would start again from when you claim again but I really don't know for sure.

Try here for contact details;

https://www.gov.uk/child-benefit/overview

kidmugsy

In your shoes, OP, I'd contribute enough to get me out of higher rate tax, but I wouldn't contribute any of my income that was exposed just to basic rate tax, unless you can use salary sacrifice.

JamTomorrow

kidmugsy wrote: »

In your shoes, OP, I'd contribute enough to get me out of higher rate tax, but I wouldn't contribute any of my income that was exposed just to basic rate tax, unless you can use salary sacrifice.

I think you're right. Just needed to float it on here to give me confidence to go ahead and make sure I wasn't missing anything.

I'd completely missed the potential CB benefit and the extra £2.5k disposable income that would bring will come in handy. Suspect I will do this for 16/17 tax year as well to get the CB benefit again.

Only concern now is a change in the pension rules coming through that impact 16/17 - assuming that any changes wouldn't hit the 15/16 tax year.

Finally, how does the utilisation of prior year unused pension allowances work? Let's say I make a one of payment this year which takes me over the £40k limit, then how does that count back? Is it taken from CY-2 or CY-1 as this may become important if I want to contribute more than £40k in 16/17.

Thanks.

davide691

Once you’ve filled CY, you start using remaining allowance from CY-3

JamTomorrow

Before I go ahead and make the one off payment to my SIPP provider I want to make sure I understand this correctly.

Is the amount quoted as 'taxable pay' on my pay slip the important number when establishing how much extra I would need to contribute to both get me out of 40% tax and enable me/my Wife to be entitled to Child Benefit again?

The reason I ask is that my remuneration package is more like a flexible package that I can use for various things. For 15/16 I expect my gross remuneration to be ~£117k but there are a number of deductions from this which reduced it to what is quoted as Taxable pay on my pay slip. This deduction primarily includes pension contributions (mine and company matching), extra days holiday which I purchase, 'partnership shares' (£150/month pre tax which I believe is an HMRC approved scheme) and death in service contributions.

Once all these are deducted this gets me to the ~£97k 'taxable pay'. Is this the number I should be basing my calculations on and am I right in assuming that pension contributions, 'partnership shares' and death in service contribution would also be an allowable deduction when determining if I am below the £50k for child benefit?

Thanks in advance.

jem16

JamTomorrow wrote: »

Once all these are deducted this gets me to the ~£97k 'taxable pay'. Is this the number I should be basing my calculations on and am I right in assuming that pension contributions, 'partnership shares' and death in service contribution would also be an allowable deduction when determining if I am below the £50k for child benefit?

Thanks in advance.

Yes it is correct. Remember to also add on gross interest as that would increase your taxable pay.

atush

And any taxable benefits in kind

JamTomorrow

jem16 wrote: »

Yes it is correct. Remember to also add on gross interest as that would increase your taxable pay.

Thanks jem16. The only interest I have is dividend income on shares I have not transferred into an ISA yet. I've added these to my income and produced a revised calculation.

Would you mind taking a look at this and let me know if it looks about right / have I missed anything? Area I'm particularly unsure about is what my new tax code should be so that I can get the tax back without waiting for self assessment. I don't trust HMRC to get it right and would prefer to tell them what to change my tax code to.

Tax Year 2015/2016
Gross Pay £117,366
Less :
Pension Contributions (£15,380)
Partnership Shares (£1,800)
Additional Holidays (£2,960)
Death in Service (£230)
Taxable Pay £96,996

Gross Dividend Income £2,000

Taxable Pay including Savings £98,996

Pay eligible for 40%
Pension credit £56,611

Gross Pension Contribution I will make [A] £55,000

Revised Taxable Pay after [A] £43,996 (well below £50k threshold to claim Child Benefit)

Payment I make to SIPP provider (80% of [A]) £44,000 [SIPP provider collect 20% of gross]

20% of [A] for me to claim from HMRC £11,000

Existing Tax code = 1040L

New Tax Code to get back £11,000 = 2140L

Utilisation of Pension Annual Allowance
2015/16 - Use full £40k (leaves £30,380 to be offset against PY unused allowances)
2012/2013 - Used £13,800 in this year therefore fully utilise remaining £26,200
2013/2014 - Used £14,150 in this year therefore use remaining £4,180 against this tax year. In 2016/2017 tax year I will still have £21,670 of unused allowances to bring forward from 2013/2014

jem16

JamTomorrow wrote: »

I don't trust HMRC to get it right and would prefer to tell them what to change my tax code to.

They won't change it to what you tell them to. You give them the figures which they put into their computer. That then spits out the appropriate tax code

Existing Tax code = 1040L

New Tax Code to get back £11,000 = 2140L

That would only get you back £4400 so perhaps best not to tell HMRC to use that.

The reason for that is that you have allowed an allowance of £11,000 which at 40% tax would give you £4,400.

You need an allowance of £27,500 to give you back £11,000 at 40% tax so tax code is going to be 3790L.