40% tax relief???

kidmugsy

grey_gym_sock wrote: »

the effect is the same. i.e. the result is the same as if you paid no income tax, and paid £10,000 into a pension.

It's not the same though because the tax rebate is in the pension not in your wallet.


I'm still not convinced. Have you tried using a pension payment to reduce a CGT payment? Has anyone else who is reading this?

Consider a different interaction. Suppose I earn £42k next tax year, and have additional income of £5k in dividends. Hurray, I cry, I'll have no higher rate tax to pay since the dividend allowance will be £5k. But that's not how the dividend allowance is going to work, apparently, for people near a tax threshold. So, interactions don't necessarily work as one might hope. Couldn't that also be true of the pension contribution/CGT interaction? Has anyone here got any empirical knowledge of the position?

grey_gym_sock

kidmugsy wrote: »

It's not the same though because the tax rebate is in the pension not in your wallet.

read what i said again, viz.: "the result is the same as if you paid no income tax, and paid £10,000 into a pension".

I'm still not convinced. Have you tried using a pension payment to reduce a CGT payment? Has anyone else who is reading this?

no, i haven't tried this to reduce CGT, only to reduce income tax.

Consider a different interaction. Suppose I earn £42k next tax year, and have additional income of £5k in dividends. Hurray, I cry, I'll have no higher rate tax to pay since the dividend allowance will be £5k. But that's not how the dividend allowance is going to work, apparently, for people near a tax threshold.

analogies are not going to give us answers. (though AIUI, in that scenario, you won't pay any higher rate tax.)

slopemaster

Thanks to all - a fascinating discussion even if it is making my head hurt...

zagfles

kidmugsy wrote: »

But it doesn't, does it? You still pay the £2k income tax, but you get compensation by having £2k relief added to your pension pot.



I'm not convinced: are you sure that HMRC sees the interaction in this light?

Personal pension contributions will increase the basic rate band by the amount of the gross contribution. That's how it works on tax return calculations.

zagfles

kidmugsy wrote: »

It's not the same though because the tax rebate is in the pension not in your wallet.


I'm still not convinced. Have you tried using a pension payment to reduce a CGT payment? Has anyone else who is reading this?

Consider a different interaction. Suppose I earn £42k next tax year, and have additional income of £5k in dividends. Hurray, I cry, I'll have no higher rate tax to pay since the dividend allowance will be £5k. But that's not how the dividend allowance is going to work, apparently, for people near a tax threshold. So, interactions don't necessarily work as one might hope. Couldn't that also be true of the pension contribution/CGT interaction? Has anyone here got any empirical knowledge of the position?

The dividend and personal saving allowances will work completely differently to pension contributions, they will use up the tax bands but the amount of the allowances won't be charged to tax.

https://www.gov.uk/government/publications/income-tax-changes-to-dividend-taxation/income-tax-changes-to-dividend-taxation

https://www.gov.uk/government/publications/income-tax-personal-savings-allowance/income-tax-personal-savings-allowance