Calculating SIPP contribution to ensure best tax efficiency?

Pssst

Maths is not my strong point but i need to do some checks before the end of the tax year !

As an example.
£43,000 PAYE income
£15000 unsheltered dividends
£1000 savings interest

So how can i work out how much to pay into a SIPP to ensure that i only pay the lower rate of tax on my divis and retain my full personal savings allowance?

Thanks all

Dazed_and_C0nfused

By "PAYE income" do you mean the taxable pay which will be on your P60 (or the total of the P60 figure and any company benefits)?

Pssst

PAYE income as per P60

Dazed_and_C0nfused

Without pension contributions this is how you would be taxed on that particular £59k

PAYE 
£12,500 covered by Personal Allowance
£30,500* x 20%

Savings Interest

£500* x 0%
£500* x 20%

Dividends 
£2,000* x 0%
£4,000* x 7.5%
£9,000 x 32.5%

*these five elements use all of your £37,500 basic rate band.

I'm assuming you aren't Scottish resident for tax purposes.

Pssst

no im in England,,so how much in this case would i need to pay into a SIPP so that i only pay 7.5% on my divis and i get all my PSA ??

Dazed_and_C0nfused

Why does getting the full savings nil rate matter so much?

Pssst

Dazed_and_C0nfused said:

Why does getting the full savings nil rate matter so much?

The allowance allows you to earn interest up to £1,000 interest tax-free if you're a basic-rate (20%) taxpayer, or £500 if you're a higher-rate (40%) taxpayer. 
or am i misunderstanding something?

yorkiechick

Assuming you have paid the correct amount of tax at source on your £43,000 salary, you will be looking to owe a further £3,325 in tax on the bank interest and dividend.
Paying into a pension to sufficiently extend the basic rate band, you will need to pay in £9,000 gross and you would still owe around £975 in tax on the dividend. So not sure it's really worth it.

Mr.Saver

yorkiechick said:

Assuming you have paid the correct amount of tax at source on your £43,000 salary, you will be looking to owe a further £3,325 in tax on the bank interest and dividend.
Paying into a pension to sufficiently extend the basic rate band, you will need to pay in £9,000 gross and you would still owe around £975 in tax on the dividend. So not sure it's really worth it.

To me it worths it. Because the total tax on dividends is £3,225 if no pension contribution is made. OP could save £2,350 in tax by paying £7,200 (net) to a pension.

Edit to correct the tax savings amount. I made a mistake when calculating it, but thankfully it wasn't materially different.

C_Mababejive

Thats it exactly Mr Saver,,,if i can contribute to my SIPP then not only am i making an instant gain by putting money in my sipp but if i do my sums right (the main reason for the post!),then i ensure that any overflow of dividends in excess of the dividend nil rate band is only taxed at the lower rtae of 7% AND i retain the ful nil rate personal savings allowance.

As im rubbish at maths a nice little spreadsheet or similar would be good to just slot in figures..

Mr.Saver

C_Mababejive said:

Thats it exactly Mr Saver,,,if i can contribute to my SIPP then not only am i making an instant gain by putting money in my sipp but if i do my sums right (the main reason for the post!),then i ensure that any overflow of dividends in excess of the dividend nil rate band is only taxed at the lower rtae of 7% AND i retain the ful nil rate personal savings allowance.

As im rubbish at maths a nice little spreadsheet or similar would be good to just slot in figures..

You could play with some online tools, like this one: https://www.uktaxcalculators.co.uk/wizard (you can make up a name and an email address to use the tool, they won't check those details).

Without pension contributions:


With pension contributions: