One-time pension contribution to reduce tax

kamb1ng

Hi experts, I'm hoping to get confirmation from you about my tax situation.
Because I sold some company shares, my income this tax year is going to be quite a bit over the complicated £100k limit.

Based on my latest payslip and projecting it until end of this tax year, here's what I believe where I will be at the end of the year.

• Taxable income: £137k
• Tax paid: £43k
• Employee pension contribution £8k

When I plug in those numbers into a tax calculator (listentotaxman), it shows the tax I have to pay this year is actually £44k. My questions:

1. Am I correct to think that if I do nothing, I will owe HMRC £1k in taxes (difference between £44k and £43k)?
2. If I plug in £11k pension contribution to the tax calculator, the tax I have to pay reduces to roughly £43k, which is equivalent to what I would have paid. Does this confirm that if I make a one-off pension contribution of £3k (difference between £11k and £8k) then I will not owe HMRC any additional tax this year?

Please let me know. Many thanks for all the help as always.

Dazed_and_C0nfused

Is the taxable income all non savings income i.e. no interest or dividends?

What method was used to make pension contribution of £8k?

If net pay or salary sacrifice is the £137k after taking the £8k into account?

BoGoF

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didottyd

I have a similar situation. My income this year from various sources, including some pension income, is £57,384. I recently made a personal contribution to another pension scheme of £7,500 (this was the actual amount I sent to the pension company) assuming that it would reduce my tax liability. However, IR have changed my tax code to 1335L and they estimate my tax liability to be £8,977. I think my tax liability should be £7,477. 

Dazed_and_C0nfused

Do you mean a "relief at source" pension contribution where the pension company adds £1,875 basic rate tax relief to your pension fund making a gross contribution of £9,375?

kamb1ng

Dazed_and_C0nfused said:

Is the taxable income all non savings income i.e. no interest or dividends?

What method was used to make pension contribution of £8k?

If net pay or salary sacrifice is the £137k after taking the £8k into account?

Yes the taxable income are all non-savings income.

Pension contribution of £8k was made through my employer (salary sacrifice + company contribution).

£137k is gross pay before salary sacrifice.

What do you think?

Dazed_and_C0nfused

You should really ignore salary sacrifice pension contributions as you aren't contributing to the pension your employer is.  All you need to remember is you will have less taxable salary as a result of agreeing to the lower salary.

Does this mean your P60 will show taxable pay of £129k?

kamb1ng

Dazed_and_C0nfused said:

You should really ignore salary sacrifice pension contributions as you aren't contributing to the pension your employer is.  All you need to remember is you will have less taxable salary as a result of agreeing to the lower salary.

Does this mean your P60 will show taxable pay of £129k?

Correct. P60 will show taxable pay of £129k.

Dazed_and_C0nfused

kamb1ng said:

Dazed_and_C0nfused said:

You should really ignore salary sacrifice pension contributions as you aren't contributing to the pension your employer is.  All you need to remember is you will have less taxable salary as a result of agreeing to the lower salary.

Does this mean your P60 will show taxable pay of £129k?

Correct. P60 will show taxable pay of £129k.

If you sacrifice another £3k salary into your pension then your tax liability will drop from £44,100 to £42,900 (saving 40% of the £3k).

If you sacrifice £6k into your pension then your tax liability will drop from £44,100 to £41,296 (saving 46%+ of the £6k).  The additional tax savings comes as you will be then in the territory of restoring some of your Personal Allowance by virtue of having adjusted net income of less than £125k.

Whether you will owe anything depends on how much tax is actually deducted under PAYE