Max Pension Contributions to receive 40% tax relief

bigadaj

Dansmam wrote: »

I'm only just getting my head around this pension malarkey myself but others on here will be able to tell you whether you can also go back and maximise previous years. I think you might be able to go back 2.

You can only use the current years income, if this exceeds £40000 then you can use carry forward from unused allowance from the three previous tax years. You use the spare allowance from oldest to newest years.

zagfles

fcjf wrote: »

So I'm getting there step by step. My understanding is;
Relevant earnings £59,000 - personal allowance of £11,500 = £47,500.
Deduct 20% tax band of £33,500 = £14,000
I make a SIPP payment of £11,200 this is grossed up to £14,000.
This is the max I can pay in to the SIPP and receive the extra 40% tax relief any SIPP contributions over and above £11,200 would only receive 20% relief.



So the above calculation stands and the additional BTL income isn't relevant for higher rate tax relief through Pension contributions, seems unfair.

You're getting confused. Firstly ignore the stuff about "relevant earnings". You're nowhere near the limit for that. You have relevant earnings of £59k and are only looking at putting in £22k or so. So it's not an issue.

The tax calculation uses all your taxable income.

So you can get 40% tax relief on £22k gross contribution into a SIPP (ie £17600 net). If you contribute £22k to a SIPP, then your basic rate tax band will be increased by £22k to £55,500, plus the PA of £11500, means your £67k income will not enter the HRT band.

There is some new rule about mortgage interest on BTL's not being fully deductible but I'm sure you've accounted for that.

fcjf

You're getting confused. Firstly ignore the stuff about "relevant earnings". You're nowhere near the limit for that. You have relevant earnings of £59k and are only looking at putting in £22k or so. So it's not an issue.

The tax calculation uses all your taxable income.

So you can get 40% tax relief on £22k gross contribution into a SIPP (ie £17600 net). If you contribute £22k to a SIPP, then your basic rate tax band will be increased by £22k to £55,500, plus the PA of £11500, means your £67k income will not enter the HRT band.

That's what I wanted to hear! I also recall reading somewhere that taxable benefit in kind amounts are added to relevant earning so I could add my car and private health to the 59k if required but sounds like it isn't if I want to pay £17,600 into the SIPP.

There is some new rule about mortgage interest on BTL's not being fully deductible but I'm sure you've accounted for that.

Yes I have accounted for this.

fcjf

How would it work if instead the op increased their sal sac amount? SO that earned income plus rental income = 45k?

OP does your employer give you any of the employer NI saving of 13.8% if you do sal sac? Even without this you avoid the 2% NI payable on income above 45k

My employer doesn't give me any of the NI saving and I don't want to pay any additional payments into my work pension for a number of reasons, they won't contribute any more than the current 17% which is very generous anyway, they don't offer any early access or drawdown so couldn't take out the 25% at 55 which I want to do and the funds options for the DC pension aren't great so I'd prefer to keep loading up the SIPP.