Pension Tapering worked example help

PeterPeterson

Hi all, I'm fairly sure I've got a tax bill coming, due to a combination of increased salary and over-paying into my pension. It's definitely time for me to start getting an accountant to do my tax returns, but I wanted to double check my own taper calculations.

Unfortunately I can't provide a link for my Excel sheet, so I have to do it the clunky way:

(A) Salary: £200,000
(B) P11D: £ 2,000
(C) Rental Income: £500
(D) Total taxable Income = £202,500 (A + B + C)

Work pension scheme (on payslip)
(E) Net Employee Contribution: £2,500
(F) Employer Contribution: £3,125

SIPP Pension Scheme:
(G) Net contribution: £17,000

Threshold Income =
(H) 202,500 - 2,500 - 3,125 - 17,000 = £179,875 (D - E - F - G)

(J) Adjusted Income = 202,500 + 3,125 = £205,625 (D + F)

(K) Annual Allowance = 40,000 - (205,625 - 150,000) / 2 = £12,188

Given I have paid 17,000 + 2,500 into my pension, I assume I am about £7,312 over my allowance? (12,188 - 17,000 - 2,500) (K - G - E)

Are my calculations for Threshold and Adjusted Income correct?

Any help would be appreciated.
Thanks
Peter

HappyHarry

Yes, that looks spot on, apart from the fact that your gross pension contributions should be counted in sections (e) and (g), not just the net.

This will put you further over your annual allowance.

Do you have any carry forward available from previous years?

Just to check, rental income seems very low?

PeterPeterson

Thanks HappyHarry.

Yes the rental property is low as it is 99% owned by my wife (in reality my incoming is <£100 per year).

Regarding the carry forward, yes there will be a bit (4 years, since 2016-2017, right?), but it looks like I've got a £10k tax bill coming my way :-(. I have stopped making any payments into my SIPP.

So frustrating! What's the #1 thing you do to reduce your tax, especially as a higher tax rate player? Pay into your pension! Except when you earn even more, than you just get screwed.

Anyway, thanks for your help.
Peter

HappyHarry

Yes, you can carry forward from as far back as 2016/17.

You have my sympathies. There are high earners in the NHS currently who are refusing overtime as, because of this tapered annual allowance, they will end up with a tax bill of well over 100% for the extra hours.

It was, in my mind, a very ill-conceived policy.

Marcon

PeterPeterson wrote: »

So frustrating! What's the #1 thing you do to reduce your tax, especially as a higher tax rate player? Pay into your pension! Except when you earn even more, than you just get screwed.

Plenty of other options. Pay for some proper financial advice and you could save a great deal more.

ratechaser

I've been calculating my income for taper purposes slightly differently, as my pension is done by salary sacrifice. Basically added my P60 taxable income figure to my total pension input (which is all considered to be employer contributions), and then added any untaxed savings interest to get to the total. No other income/BIK to account for.

Does that achieve the same result? Quite important as I'm working out what my carryover ability is for the next 2 years...

Dox

ratechaser wrote: »

I've been calculating my income for taper purposes slightly differently, as my pension is done by salary sacrifice. Basically added my P60 taxable income figure to my total pension input (which is all considered to be employer contributions), and then added any untaxed savings interest to get to the total. No other income/BIK to account for.

Does that achieve the same result? Quite important as I'm working out what my carryover ability is for the next 2 years...

Have a read of this article: https://www.moneymarketing.co.uk/claire-trott-salary-sacrifice/?cmpid=pmalert_8792505&utm_medium=email&utm_source=newsletter&utm_campaign=mm_daily_news&adg=DFC50736-4929-46DF-86F0-16A8F32ECD59&sid=MM00024

ratechaser

Dox wrote: »

Have a read of this article: https://www.moneymarketing.co.uk/claire-trott-salary-sacrifice/?cmpid=pmalert_8792505&utm_medium=email&utm_source=newsletter&utm_campaign=mm_daily_news&adg=DFC50736-4929-46DF-86F0-16A8F32ECD59&sid=MM00024

So ok... yes I get the fact that anything sacrificed in salary gets added back into the threshold calculation. And that's why I calculated it as per my previous post. Total P60 taxable income will not include the sacrificed amount, whereas the total pension input amount will, even though it's viewed as 100% employer contribution.

So I think those 2 figures plus my untaxed savings interest will give me my threshold earnings for taper purposes. Which by the way means that with carryover, I'll be able to contribute just over 40k for the next 2 years.

As to the pros/cons of Sal Sac, given my employer contributes 16.15% to my 7%, plus I'm getting the 2% NI relief, can't see any reason why I'd want to do it another way!

dudload

I'n not sure it's correct that you're subtracting the employer contribution from your threshold income (not that it makes a difference anyway).

I also have the same dilemma in calculation as someone else. I'm back calculating my total income from the "Taxable Income" part of my P60 (which is also on HMRC website, showing say £80k out of my salary of £100k because of my pension contribution) and adding my personal pension contributions paid net out of my salary.

It's very confusingly stated on the HMRC website itself, as it's quite clear that net income should start with "Taxable Income", even though when you go into self service it has "Taxable Income" equal to my P60 amount (£80). I'm assuming they really want to start with gross income (£100) here?

I think this, but when you then go to their Adjusted Income section (on the HMRC "Work out your reduced (tapered) annual allowance" page), it then says to add pension contributions made before income tax. However, if you follow this, it would double count the £20k contribution (which was coming out of the £100k originally). Am i confusing things?