Using pension contributions to reduce savings tax?

dosh37

Last year the only income I received was from a private pension + savings interest.

A couple of 2 year fixed savings bonds reached maturity which meant that two years’ worth of interest became liable for savings tax in the same tax year. Consequently I ended up having to pay some income tax.

(With hindsight I should have chosen to have the interest paid out annually rather than have it added back into the bond account).

 

Could I have avoided the savings tax by making additional contributions to an existing Stakeholder Pension?

Dazed_and_C0nfused

Unlikely.

All that that type of pension contribution (relief at source) does is increase the amount of your basic rate band. Which can mean more 20% (or 21%) tax is paid and less 40/41% tax.

You don't actually pay tax on interest unless your total taxable income exceeds at least £17,250 (often £18,500) so presumably you either have a half decent pension or a lot of interest, are you anywhere near the higher rate band?

Mark_789

Worth noting that if your income is over $100k then you will also lose £1 of your personal allowance for every £2 you are over it.  This results in interest/dividends being essentially taxed at 20% as you should declare them in the insuing self assessment form.