Pension personal allowance calculator

1Amigo

I am in the fortunate position of earning in excess of £100k although this is resulting in the loss of personal allowance for the current tax year. Is there a calculator available, which I can use to determine how much i need to fund my SIPP, so that I can claim back the whole personal allowance (reducing my income to below 100k).

My company does not offer a pension so a private pension is all that is available to me.

Thanks.

dunstonh

Do you really need a calculator for that?
You can do it in your head or even your fingers.

ex-pat_scot

1Amigo wrote: »

I am in the fortunate position of earning in excess of £100k although this is resulting in the loss of personal allowance for the current tax year. Is there a calculator available, which I can use to determine how much i need to fund my SIPP, so that I can claim back the whole personal allowance (reducing my income to below 100k).

My company does not offer a pension so a private pension is all that is available to me.

Thanks.

A question: is your company a one -man-band (ie akin to personal service company) - do you control it?
If so, then the most tax-efficient route to using pension contributions is via the company and using salary sacrifice.
Depending on whether you already have an existing pension and unused allowance from prior years, you can contribute above the £40,000 annual allowance.

If you don't control your company, and it doesnt offer a pension, then it should shortly (under AutoEnrolment). Granted the amounts are trivial, but the scheme should still be offered.

To calculate the amount required to bring you down below the £100,000 level, then do the following: (example for someone earning £120,000 gross).
- work out how much salary is above the £100,000. In the example, this means a (minimum) £20,000 contribution into your fund.
- work out what tax would be suffered on this amount. In your case, the full £20,000 would suffer tax at 60%, so the tax would be £12,000.
- work out what the net contribution should be. In your case it is the gross minus tax, ie £20,000 less £12,000 = £8,000.
This is the amount you need to write a cheque for, if paying out of your own bank account.
HMRC will automatically add the basic rate tax; the rest comes when you let them know (either call them or do a SA form), and is effected by means of adjusting your tax code.
You will be expected to then pay the remainder into your account.

I THINK this is how it all works. It's pretty straightforward.

Dazed_and_confused

Surely a £8000 contribution from an individual is only £10000 when grossed up to include the basic rate tax relief the pension company will reclaim.

1Amigo

Thanks for responses.

In the example given will that not mean I'm only putting £6400 into a pension after I claim back 20% from the self assessment? So the correct amount for 120k salary is 8000 * 1.25 = 10000?

I presume nothing needs to be done separately regarding the PA and it will just be accounted for automatically on self assessment?

Dazed_and_confused

I have no idea where you are getting £6400 from???

Your pension fund would have £10000 in it which initially costs you £8000. When you complete your self assessment return you will get the benefit of higher rate tax relief which will benefit you by another £2000 (either tax refund or reduction in your tax bill for the year depending on your overall tax liabilities).

So £10000 in your pension ends up costing you £6000.

You will also have the potential to save £5000 of your personal allowance. This depends on your total income for the tax year in question. If total income in 2016:17 was, say, £140,000 then pension contribution of £10,000 wouldn't affect the personal allowance, it would still be reduced to 0 but if income was £125,000 then some personal allowance would still be due.

If you don't want to pay for professional advice you would be well served by having a read of this,
https://www.gov.uk/guidance/adjusted-net-income

dunstonh

Pension contributions should always be viewed as gross. So, if 10k over 100k then 10k gross should be your contribution.