Tax payable on pension

berbatov10

PS Bowlhead there are few good things about getting older, nearer my pension is one

ThinkingOutLoud_2

berbatov10 wrote: »

Bowlhead as I read that my mouth dropped wider open. I don't know if you are a mathematical genius but that is such a brilliant plan and is plain English. If I buy that crate I will save you a bottle my friend

And while your need to find the money for holiday suggests you didn't have any spare cash, if you have any more spare income in the cited few years before you retire - see if you cannot repeat the trick with that extra and put more into your pension to " reaquire" your 40% tax than just the load recyling sums described.

You can put the whole 18k in every year and some more if you had it.

This is, as said, especially good if you won't be a higher rate tax payer when drawing your pension ( as seems possible, but isn't known).

bowlhead99

berbatov10 wrote: »

Bowlhead as I read that my mouth dropped wider open. I don't know if you are a mathematical genius but that is such a brilliant plan and is plain English.

Well yes, I'm a mathematical genius.

But in seriousness, you sometimes hear cynics say "ah well, for rich people, tax is pretty much optional, just move yourself to the Caymans and buy advice and you never have to pay it again". Really, it's simpler than that, even if you're not mega rich - there are all kinds of reliefs and allowances.

The government wants to incentivise pension saving/ investing, so they let you put up to £40k or your entire salary into a pension every year, whichever is bigger - and pay no income tax on it now, just let it grow in a pension and then pay tax on only 75% of the grown amount, at whatever your marginal rate is at the time you choose to take it.

That time could be a year or two between retiring and drawing your "main" pension or state pension when tl you have spare annual personal allowance and the marginal rate of tax on a pound of income is 0%. Well, 0% is clearly a long way below 40%. But even 20% is a long way below 40%. Nice.

So the lesson is, if you're a high rate taxpayer, stick whatever you can in a pension and save that high tax. When it's impractical to put as much as you'd like into the pension because you have other things going on in your life, just do whatever you can by hook or by crook. As mgdavid said, try to "bang in as much as is humanly possible" Beg, borrow or steal to do it.

In your case , given low rates, borrow is quite possibly a good move.

If I buy that crate I will save you a bottle my friend

For a non-vintage I quite like Bollinger. Mmm, tasty. At Majestic it's about £400 for twelve at the moment (http://m.majestic.co.uk/Bollinger-Special-Cuvee-zid22050) if you're willing to hang on for a sale you could probably fit it into that £390 budget.

jamesd

If you were to take any of the taxable portion you would be limited to £4,000 of gross pension contributions a year for life. Bad mistake given your income.

Do you have other pensions from which you can take a 25% tax free lump sum, in addition to this one?

Higher pension contributions then taking a tax free lump sum might be a cheap way to do things if you don't mind leaving 75% in the pension, as explained by bowlhead99. Initially buying with one or two 0% for purchase credit cards might well beat using a loan.

How much of your higher rate income isn't already being used to make pension contributions?

Given your age you can now pay in money each year and also take out tax free 25% of the value ending up in the pension. Assuming none of the 25% is used to fund pension contributions or the lump sums are under £7,500 per rolling twelve months or otherwise within the recycling rule limits. Your work pension probably doesn't let you do this directly but it may be doable by transferring out or you could use a personal pension as well. In effect this eliminates the income tax on some of your pay.

berbatov10

I have an occupational pension which when I retire will give me a lump sum between £120 -£135,000 on top of a monthly residual though I cannot access this prior to retirement. I also had not considered credit card use to fund pension

Thrugelmir

bowlhead99 wrote: »

This is after all a money saving expert site - I think five grand saved and a crate of champagne is not bad for a few minutes of planning.

Holidays are soon forgotten. There's next years to fund, and the year after........