100k taxable income - too late to reduce?

btcp

londoninvestor wrote: »

It's £20.8k (that's the amount of the cash contribution that will result in £26k going into your pension after BR tax relief). That may not make the problem seem much less, I appreciate...

Yes exactly I forgot about RSU as I didn’t plan to cash them out anyway so they are not part of my planning. But if they take out income tax on vest I suppose this adds up. If it were 6k I could pay it in pension, but 20k is too much for me now. Seems like I have no choice but pay high tax on all and plan better for the next year .

Dazed_and_confused

You do realise it isn't all or nothing?

If you are close to the adjusted net income limit where Personal Allowance is reduced to nil then paying £6k net, which become £7.5k in the pension fund with basic rate tax relief is still something you should think about carefully.

There is a slice of adjusted net income from £100,000k to £123,700 where your Personal Allowance is reduced from £11,850 down to £0 and this creates an effective tax rate of 60%.

So paying £6k into a pension becomes £7.5k (gross) in your pension fund and could potentially save you £3k in tax as well.

End result £7.5k pension fund for overall real cost of £3k.

btcp

Dazed_and_confused wrote: »

You do realise it isn't all or nothing?

If you are close to the adjusted net income limit where Personal Allowance is reduced to nil then paying £6k net, which become £7.5k in the pension fund with basic rate tax relief is still something you should think about carefully.

There is a slice of adjusted net income from £100,000k to £123,700 where your Personal Allowance is reduced from £11,850 down to £0 and this creates an effective tax rate of 60%.

So paying £6k into a pension becomes £7.5k (gross) in your pension fund and could potentially save you £3k in tax as well.

End result £7.5k pension fund for overall real cost of £3k.

Thank you, and I didn’t realise that I am one of those people who earn 100k first time in their life and not prepared.

Could I clarify please? So if I pay 6k in pension then it doesn’t automatically turn into 7.5k on my pension account, I have to claim 1.5k through the self assessment right?

Where is the other 3k tax savings are coming from?

Thank you!

Dazed_and_confused

So if I pay 6k in pension then it doesn’t automatically turn into 7.5k on my pension account,

Yes it does. If it's a qualifying payment into a "relief at source" scheme then the pension scheme (courtesy of HMRC) adds the basic rate tax relief of £1.5k so you have £7.5k in the pension fund.

This will also increase the amount of basic rate tax you can pay by £7.5k. Which in turn reduces the amount of higher rate tax you pay. Potentially saving £1.5k (7,500 x 20%)

And it can also result in you getting some or all of your Personal Allowance back saving you even more.