Pay more personal contribution?

Dragonlee1976

Hi. I'm currently doing well in my job with decent commission each quarter but not enjoying paying 40% tax. I know paying tax is part of life but would paying more of my personal contributions help with my long term money plans and reduce the amount of tax paid out? Just need some advise as best way of getting earnings to work for me better.

Tom99

[FONT=Verdana, sans-serif]If you pay money into a pension you will get tax relief on that at your marginal rate. So for example if this tax year you will pay 40% tax on say £5,000 then pay £5,000 gross into a pension.

[/FONT] [FONT=Verdana, sans-serif]That way you will be getting the most benefit out of your contribution.[/FONT]

MallyGirl

If you can salary sacrifice your pension contribution then that can save tax and NI

Dazed_and_confused

To expand a little on Tom99 says, using his example you would pay £4,000 into a personal pension/SIPP and the provider claims basic rate tax relief of £1,000 from HMRC and adds this to your pension fund.

You tell HMRC about the gross contribution of £5,000 and this increases the amount you can pay basic rate tax on by £5,000 so in your example this saves you another £1,000 (paying 20% tax instead of 40% on an extra £5,000).

So you end up with £5,000 in your pension fund for a total outlay, net of your personal tax relief, of £3,000.

All assuming you are earning enough to be paying sufficient 40% tax.

dunstonh

One of the good things about being a higher rate taxpayer is that you get 40% tax relief on your pension contributions. (i.e. £100 into the pension actually costs you just £60)