Pension contributions needed to get out of higher rate tax

glider3560

I unexpectedly changed jobs earlier this year and became a higher rate taxpayer. I'd like to avoid the higher rate tax band (mostly so I don't get hit with the reduction in personal savings allowance).

Gross taxable income for the year (including savings interest and everything else) = £48500
Higher rate threshold = £46350

I'm on the threshold by £2150.

My private pension contributions have been £1265. My pension provider has claimed £316.25 from HMRC.

How much more do I need to pay into the pension to get my income below £46350? I cannot find a definitive answer online, other than how to calculate the extra 20% tax relief I will receive.

[Deleted User]

Taking at face value the figure of £2150:

You have made pension contributions of £1265, grossed up to £1581 by your provider claiming the tax relief.

You should now contribute a least a further £455 which will be grossed up in the same way to £570.

£1581 plus £570 is £2151 - forgive the extra £1.

Pennywise

You also need to deduct the interest you've earned from the H/R threshold. Even though interest will be covered by the allowance, it's still taken into account in the calculation as to whether you're a H/R taxpayer or not, so could push you into H/r and reduce the allowance - it's a kind of circular calculation.

glider3560

Pennywise wrote: »

You also need to deduct the interest you've earned from the H/R threshold. Even though interest will be covered by the allowance, it's still taken into account in the calculation as to whether you're a H/R taxpayer or not, so could push you into H/r and reduce the allowance - it's a kind of circular calculation.

Thanks. The £48.5k includes a rough estimate of the full interest amount.

I've moved most of it to ISAs anyway, so my estimate should be mostly correct.

glider3560

[Deleted User] wrote:

Taking at face value the figure of £2150:

You have made pension contributions of £1265, grossed up to £1581 by your provider claiming the tax relief.

You should now contribute a least a further £455 which will be grossed up in the same way to £570.

£1581 plus £570 is £2151 - forgive the extra £1.

That's exactly what I was thinking - thanks for the clarification.

The reason for trying to do this so early in the tax year is that my new employer is offering a very generous pension for incoming transfers, so I'm planning on making the deposit into my SIPP asap, then transfer this into my new employer's pension before the deadline for transfers in expires.

Mr.Saver

Sorry for my lack of knowledge on this. Can paying into a private pension (not by salary sacrifice) change the tax band at all? I don't remember that I've seen any rules like that, could anyone please post a link to the HMRC website regarding this? Thanks.

Dazed_and_confused

Yes.

Contributions to a personal pension/SIPP (and gift aid payments) increase the amount of basic rate tax payable, which in turn can reduce the amount of higher rate tax payable.

HMRC no longer have theor own website and gov.uk doesnt tend to go into that lower level detail but there is an example in the tax relief section of the link below,

https://www.litrg.org.uk/tax-guides/tax-basics/do-i-have-join-pension-scheme#toc-what-are-the-annual-and-lifetime-allowances-

Mr.Saver

Thanks, the example in that link is helpful.