Additional pension contributions to avoid losing personal allowance

Oki2

I was caught unawares last year after earning over £100k for the first time and faced a large tax bill due to losing my personal allowance, which in effect taxed all of my income above £100k at equivalent rate of 60%.
I want to avoid it this year so plan to pay an additional one-off contribution to my workplace pension before the end of the financial tax year. My question is... to maximise the benefit, is it as simple as paying the exact amount you earned above £100k into your pension (up to the £123k limit)? Or is there an alternative calculation I should do?

In these unprecedented times of the Covid-19 situation, I'm a bit uncertain about paying a large amount into something I won't be able to access for some time (might need it later in the year!) but I don't see an alternative unless I take the tax hit when I complete self assessment.

Dazed_and_C0nfused

Have you established what your "adjusted net income" will be without this additional pension contribution?

Will your contribution be net pay, relief at source or gross with no tax relief whatsoever at the point of payment?  Or are you sacrificing some salary?

And it is £125k this tax year with the Personal Allowance now being £12,500.

Oki2

The contribution will be net pay (no time to set up salary sacrifice). Pension provider will claim basic rate relief. Not sure what "adjusted net income" is, but I do know my total taxable income for the financial year. 
(thanks for the correction for £125k)

Dazed_and_C0nfused

Adjusted net income is what the amount of your Personal Allowance is based on i.e. taxable pay on P60 plus interest less relief at source pension contributions.

You have got your pension contribution types mixed up.  Net pay is where you earn say £130k pay 10% and your P60 shows taxable pay of £117k  (and PAYE tax is calculated on £117k).  There is no pension tax relief with net pay.

Relief at source is where you give a pension company say £8k and they add basic rate tax relief of £2k to give you a pension fund of £20k.
These contributions do not reduce your taxable income but they do reduce your adjusted net income and increase the amount of your basic rate tax band.

Oki2

Ok, so it's relief at source - I will make the payment which will come from my after-tax salary. I didn't have the right term for it but I do know what the outcome will be
So in order to maxmise (no relief at source contributions have been made this year so far), I should make a relief at source contribution equal to (Taxable Income + Interest) - £100k?
Then I understand I can claim further tax relief during self assessment.

Dazed_and_C0nfused

If that is the only taxable income you have then sort of but you really need to Google adjusted net income and have a read up on what's included as you may have other income which needs to be considered?

Company benefits or dividend for example.

And don't forget with relief at source you pay over 80% of the gross amount.

So if you contribute £8k that equates to a £10k gross contribution and it is £10k which forms part of your adjusted net income calculation.  And your basic rate tax band would be increased by £10k to £47.5k.  Which in turn reduces the amount of higher rate tax you would be charged.  All of which forms part of your Self Assessment calculation - you just need to remember to include the relief at source contribution in the relevant box on your return.

Thrugelmir

Make sure you don't exceed the annual allowance i.e. include your employers contribution. 

Oki2

Ok I will do that to make sure I know the correct adjusted amount.
Say adjusted net income was £110k, and I want to make a relief at source payment to avoid losing tax allowance, how much should that pension payment be?

Dazed_and_C0nfused

You would pay over £8k which would become £10k in your pension fund with the basic rate tax relief that the pension company add.

ratechaser

Mrs RC has just done this, taxable income of about 125k so opened a Vanguard SIPP, put 20k in, it immediately showed as grossing up to 25k with basic relief. She's going to get her tax return done pretty sharpish in April!

Dazed_and_C0nfused

What is her current tax code?

After she files her 2019:20 return HMRC will probably change her 2020:21 tax code to include tax relief on pension contributions.  This is not tax relief for the £25k contributed in 2019:20 it is an assumption she make a similar payment in 2020:21 so if that won't be the case she should get it removed from her 2020:21 tax code quickly otherwise she will end up with a large tax bill for 2020:21.