Income and pension contribution

mikeyboy

Hi All,
I’d really appreciate some help as I’m getting myself into a muddle trying to work something out.
I am fortunate to be in a well paid career and I’d had my March payslip (month 12 of tax year).    

Total taxable income for the year = £99,957.53
i also have a company car, the benefit of which = £9515 

I did my self assessment for 2018/2019 and there was an underpayment.   So, this is coming off next years PAYE.  The underpayment is reducing my tax free allowance by £3178.  The car benefit also increase next year, to £9812.   I suspect taxable income will be a bit lower next year, probably around £90k.

How do I work out what contribution I can make to a pension to maximum effect.   Ideally,  I want to pay this in ASAP for the 2019/2020 tax year and then same again next tax year.  I think the key is to get below the £100k figure, as I’m effectively paying 60% tax,On the bit over 100k?

sorry for the long winded post!

Dazed_and_C0nfused

What do you mean by maximum effect?

Just that you will retain your full Personal Allowance (the 60% bit) or do you want to obtain as much 40% tax relief as well on any pension contribution?

Will this be a "relief at source" contribution to a personal pension or SIPP where you contribute say £4k and the pension company adds basic rate tax relief of £1k to give you a fund of £5k?

Finally do you have any other taxable income not so far mentioned, such as interest or dividends?

mikeyboy

Thanks for your reply!
I want to try and retain as much of the personal allowance but as possible (the bit at 60%)
The money will be going into a stakeholder pension.

thanks again 

Dazed_and_C0nfused

Based on your original post you would need to contribute £7,578 and this will be topped up to £9472.50 with the basic rate tax relief the pension company will add.

This reduces your "adjusted net income", the thing your Personal Allowance is based on, to £100k.

Your taxable income will still be £109,472 but your basic rate tax band will be increased from £37,500 to £46,972.

You have to make the contribution in the current tax year for the above to apply as you can only ever receive tax relief for the tax year you make the contribution in.

Once you have filed your Self Assessment return HMRC will probably alter your 2020:21 tax code to include pension contribution tax relief.  That is not allowing relief for the contribution made in 2019:20 it is on the assumption you will make a similar contribution in 2020:21.  So if any contribution you make in 2020:21 will be different (or you decide not to make one) you should get your tax code adjusted otherwise you could end up with a large tax bill for 2020:21.

mikeyboy

That’s great - thanks  so much for your help