Paying into pension to reduce income tax

BTL_Reading

I may be getting a lump of cash soon (let's say £30k) for which I believe I'll be liable to pay Income Tax (need to check that!)

My income is £60k so currently paying £17k in higher rate tax.

I'll probably eventually put the cash into my pension, so looking for a tax-efficient way to manage it.

Am I right in thinking if I put £17k from the lump into pension this year, it will raise the threshold when I'll start paying higher rate tax from £43k to £60k and I'll be able to claim back 20% of the £17k (presumably through self-assesment)?

And that next year I can pay in the remaining £13k - and this would be more efficient than, say, paying in £30k this year since paying off the higher rate tax is the most efficient way to do this?

CLAPTON

BTL_Reading wrote: »

I may be getting a lump of cash soon (let's say £30k) for which I believe I'll be liable to pay Income Tax (need to check that!)

My income is £60k so currently paying £17k in higher rate tax.

I'll probably eventually put the cash into my pension, so looking for a tax-efficient way to manage it.

Am I right in thinking if I put £17k from the lump into pension this year, it will raise the threshold when I'll start paying higher rate tax from £43k to £60k and I'll be able to claim back 20% of the £17k (presumably through self-assesment)?

And that next year I can pay in the remaining £13k - and this would be more efficient than, say, paying in £30k this year since paying off the higher rate tax is the most efficient way to do this?

assuming no BIK or other factors, then yes paying gross 17k will reduce your 60k salary to 43k and mean you get 40% tax relief
yes 17k
if you are paying from net salary then you actually pay 17k x .8 = 13.6k

grey_gym_sock

do you mean that your regular income is £60k, and you will in addition have £30k of one-off taxable income in the current tax year? if so, then your income in this tax year will be £90k, in which case you could put the whole £30k in a pension in this tax year and get 40% tax relief on it (which you would do, assuming you contribute from net salary, by actually paying £30k x 0.8 = £24k).

BTL_Reading

@grey gym sock: Ah yes, you're right! I'd forgotten about the tax liability of the lump sum itself - I independently have a similar issue about efficiently managing an endowment payout in a few years, which is what I was thinking of.