Moving to lower tax bracket

Atechnician

I'm curious to know I heard that if you pay extra into for example your pension that gets deducted pre tax from net pay is it possible to move to a lower tax bracket

For example I'm on 52k per year and uk gov website says above 45k is 40% tax and below 45k is 20% tax, if I was to set up to pay 7k into pension plan will it be classed as earning 45k and get taxed 20%?

uknick

You can pay up to your annual salary into a pension, subject to a maximum of the annual allowance, currently £40k.

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/how-much-can-i-pay-into-a-pension

So yes, you can drop to a lower tax rate if you reduce your taxable income by pension contributions.

[Deleted User]

Atechnician wrote: »

I'm curious to know I heard that if you pay extra into for example your pension that gets deducted pre tax from net pay is it possible to move to a lower tax bracket

For example I'm on 52k per year and uk gov website says above 45k is 40% tax and below 45k is 20% tax, if I was to set up to pay 7k into pension plan will it be classed as earning 45k and get taxed 20%?

You would only need to pay £5600 - which would be made up to £7000 by HMRC.

jem16

[Deleted User] wrote:

You would only need to pay £5600 - which would be made up to £7000 by HMRC.

That depends on the type of scheme. The Op seems to be talking about a pension paid pre tax from gross pay ( although does say net pay so clarification is needed ). If this is the case then £7k would be paid in and nothing would be made up by HMRC as less tax would be paid.

xylophone

https://www.aegon.co.uk/support/faq/pension-technical/Salary-sacrifice-higher-rate-tax.html

may be worth a look.

Dazed_and_confused

The way the op worded the original question makes me wonder if they are under the, all too common, misapprehension that if you earn £52k you pay 40% on everything rather than just the bit over £45k (or £43k in Scotland)?

Atechnician

What information do you guys need? My money in split between salary and bonus which totals 55k actually when I worked it out. Which I'm gaurunteed and get every month. I currently pay 10% to pension a month and started a 10% discounted share scheme aswell so 20% of my month goes on that at the minute and was hoping if I increase my pension contribution to bring earnings to 45% that I would drop to 20% tax?

Do I pay 40% on the whole amount or just on the amount over 45k?

Dazed_and_confused

In your position you would normally pay,

nothing on the first £11,500
20% on the next £33,500
40% above £45,000

Salary is irrelevant it is taxable pay which counts and this should be shown on your payslip. For example £55k salary with 10% company pension would commonly be £49.5k taxable pay so 40% tax is only being paid on £4.5k (or £6.5k in Scotland).

Your personal circumstances might differ slightly but this gives the basic picture for most people.