Using Pension contributions to offset upper income tax?

solidpro

Judwin wrote:

(60% of £8060)

- how come it's 60% of 8060 when the allowance next year is 10600?

Thanks

solidpro

Also if you're got kids there's child benefit things to consider.

. I do have two children who I am a single father to - any chance of sharing a link alluding to what you're referring to? Thanks!

Darksparkle

solidpro wrote: »

. I do have two children who I am a single father to - any chance of sharing a link alluding to what you're referring to? Thanks!

I assume they are referring to the child benefit high income charge - https://www.gov.uk/child-benefit-tax-charge/overview

The personal allowance for 2016/17 is going to be £11,000 (not £10,800). This was changed in the Autumn Statement.

https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2016-17/tax-and-tax-credit-rates-and-thresholds-for-2016-17

Judwin

Solidpro,
Booksurr and Darksparkle have covered what I was referring to.


In your position, (and assuming that you don't need the extra income), I would be getting the company to make company payments into your personal pension or SIPP so that your taxable income from dividends drops below £50K. That would allow you to claim child benefit for your two children. Your company would also benefit by saving the CT on these payments, which they may be willing to pay into the pension too.


The changes for the 2016/17 tax year in the way dividends are taxed are likely to clobber people like you (and me) quite hard. You really need to get your head around all the various taxes, allowances and benefits that you are entitled to and work out what works best for you. If you get it wrong you could easily end up with a personal tax bill approaching £10K to pay.


Cheers
Judwin

squarebear99

Judwin wrote: »

You should also note that your company can make payments directly into your pension plan, and that these payments are not restricted by your "relevant income". Your company does not have to pay CT on these payments.


So to get rid of your higher rate tax liability, reduce your dividend 'pay' by £7240, and get your company to pay that money directly into your pension. Your company also saves CT on this payment amounting to £1810, so you might be able to persuade the directors to pay this into your pension too.

You would still be allowed to pay in a gross £8060 yourself, and the £7240 (+£1810?) would be added making a total input of £15300 (£17110?).

Just a by the by.

This is exactly what I do. I run a one man Ltd Co. My Ltd Co. contribute directly to my company stakeholder pension. I used to pay personal contributions too.