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Reducing high rate
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Escapar2020
Posts: 136 Forumite
in Cutting tax
Hi all
I’ve just had a tax refund, so downloaded the HMRC app in order to claim it. I've been exploring the app and came across my tax estimate for this Year:
Tax-free salary £12,500
Basic rate salary £37,500 – tax =£7,500
Higher rate salary £6,622 – tax =£2,648
I've thought about making extra pension contributions before. Am I right to think that putting an extra £7k into my pension would take me out of the higher rate tax band? If so, would it be too late to make a lump sum contribution this year? I'm in the LGPS if it makes a difference.
Is there anything else I should consider?
Thanks
Escapar2020
I’ve just had a tax refund, so downloaded the HMRC app in order to claim it. I've been exploring the app and came across my tax estimate for this Year:
Tax-free salary £12,500
Basic rate salary £37,500 – tax =£7,500
Higher rate salary £6,622 – tax =£2,648
I've thought about making extra pension contributions before. Am I right to think that putting an extra £7k into my pension would take me out of the higher rate tax band? If so, would it be too late to make a lump sum contribution this year? I'm in the LGPS if it makes a difference.
Is there anything else I should consider?
Thanks
Escapar2020
0
Comments
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As a higher-rate taxpayer you would be able to claim an extra 20% tax relief on your contributions which would also be applicable on any regular contributions you already make, if not done under salary sacrifice or a net pay agreement.
Paying an extra £7,00 won't take you out of the higher-rate tax bracket but would reduce your tax liability by 20% i.e. £1,4000 -
It seems like a good idea then! I know it would mean locking money away for a while though, which I can afford to do, but is there other alternative I should consider?0
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