Tweaking Net Pay Arrangement

OldBeanz

Wife is in the LGPS and just makes enough to contribute to her AVC through their Net Pay arrangements. She is going to undershoot the maximum she can withdraw from her AVC as cash when she retires but in addition will draw a CS pension of about £6k when she hits 60. An extra £6k into her AVC would probably top her AVC out nicely and let her retire at 61.
So is there any way she can leave the £6k CS pension as non taxed forcing the tax onto her pay which she could then direct towards her AVC?

Linton

If you have multiple incomes such as a pension and employment you can allocate your tax allowance as you wish between the incomes via your tax account or on request to HMRC. So she could set the Pension tax allowance to £6K leaving £5850 (or whatever it is) for her employment.

Dazed_and_confused

Maybe I've completely misunderstood this but why is there any need to change anything??

All net pay relief does is reduce the salary to a lower taxable salary, I'm struggling to see what benefit a different tax code will make to the overall position here?

Can you enlighten me???

Dox

Dazed_and_confused wrote: »

Maybe I've completely misunderstood this but why is there any need to change anything??

All net pay relief does is reduce the salary to a lower taxable salary, I'm struggling to see what benefit a different tax code will make to the overall position here?

Can you enlighten me???

In a net pay arrangement, non-taxpayers don't get any tax relief if their earnings are too low to be taxable - and I think that's what is concerning OP.

Dazed_and_confused

But the op's wife isn't going have income which is too low to pay tax.

My understanding is she will pay tax so it doesn't matter if she doesn't earn enough to pay tax at the current job she will still benefit from tax relief.

Job = £8000 - pension £600 = £7400 taxable income
Pension = £6000 taxable income
Taxable income = £13,400
Tax due £180 (19/20 rates, assuming not Scottish resident for tax purposes)

Without the pension contribution the taxable income would be £14,000 and tax due would be £300.

So the pension contribution has produced tax relief of £120.

Linton

Dazed_and_confused wrote: »

Maybe I've completely misunderstood this but why is there any need to change anything??

All net pay relief does is reduce the salary to a lower taxable salary, I'm struggling to see what benefit a different tax code will make to the overall position here?

Can you enlighten me???

Yes, overall the position is the same, assuming that HMRC add all taxable incomes and subtract the total tax allowance. However if she does not set up the tax allowance split appropriately the OPs wife will pay excess tax on the pension income which is then refunded sometime after the end of the tax year.

Dazed_and_confused

Thanks. I understand that but I don't understand what "tweaking net pay arrangements" has to do with it?

Tweaking tax codes yes.

Tweaking how Personal Allowance is utilised yes.

But net pay has lost me!

OldBeanz

Yes my poor terminology. At present her salary is £13k - come 60 she will then be earning £19k but her AVC is taken from her £13k net pay so by having the £6k paid without tax it would leave be as Linton said in post 2. So we need to let HMRC know to use the tax allowance against the Pension rather than all against her pay.

Dazed_and_confused

At present her salary is £13k - come 60 she will then be earning £19k but her AVC is taken from her £13k net pay

I know it doesn't really matter because you clearly know what you want/need to do but this makes no sense whatsoever to me