No personal allowance

richd70

DoctorStrange said:

Increasing your pension contributions to c£48k (assuming you didn't max last year's allowance) should get you to the  c£100k mark, which would restore your PA.

As you're over 50, this might be the best option for you given the dreaded 62% tax rate.

So, does that mean I would go from the 12% I currently contribute (c£13,440) to, say, 43% (£48,160), and then I would effectively get £12,500 back (effectively meaning my 43% contribution was 'only' costing me £35,600?) I guess the problem is that it would be quite a reduction in my monthly take home salary? Something like £22,160 - 40% which is c£13k, so I guess I would see my monthly take home go down by £1k+ a month  Not sure I can afford that.

[Deleted User]

Your ANI is currently 134560 with your 12% contribution. The 13440 is saving you 5376 in tax. If you could afford additional contributions of 34560, your tax would reduce by a further 18824 (9560 @40% + 25000@60%). So the 34560 contribution would cost you 15376 net pay. 

I imagine that there could be issues with the maximum amount one can contribute to a pension scheme but I don’t know enough to comment further.

pphillips

richd70 said:

Sadly, I'm over 50, so that's the lifetime isa out the window. I do have two children, but, I have stocks & shares JISAs setup for them, would a SIPP be better? 

It's just a different type of investment, for their retirement (as they won't be able to access it until the age of 55).
At the moment you can pay in £2880 for each child per tax year and the government top it up to £3600.

richd70

Wow, that really is planning for the future - putting money into a pension for my kids!  😉

So, if I'm reading the thread right, it looks like there's nothing more I can do except pay massively into my pension (at the expense of my take home), and just have to take the dreaded 60% tax rate ☹️ 

Jeremy535897

If you are over 55 and you are able to take 25% of a contribution out as a tax free lump sum, if you put £80 in your pension, you may save up to an extra 40% of the gross in income tax (with the Government contributing 20%), which is £40, and be able to take out £25 tax free. For a cost of £15 (£80 less £40 less £25), you have an extra £75 in your pension. No doubt others more knowledgeable than me in this area will comment.

[Deleted User]

Jeremy535897 said:

If you are over 55 and you are able to take 25% of a contribution out as a tax free lump sum, if you put £80 in your pension, you may save up to an extra 40% of the gross in income tax (with the Government contributing 20%), which is £40, and be able to take out £25 tax free. For a cost of £15 (£80 less £40 less £25), you have an extra £75 in your pension. No doubt others more knowledgeable than me in this area will comment.

Indeed - have used this nice ploy many times.

1) Put 16000 into pension - HMRC make it up to 20000. Pension fund has increased by 20000 and has cost 16000.

2) Claim additional relief as a 40% taxpayer.-pension has increased by 20000 and has cost a net 12000.

3) Take 25% tax free cash - pension fund has increased by 15000 and has a net cost of 7000.

This is based on marginal relief of 40%.

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

If you are over 55 and you are able to take 25% of a contribution out as a tax free lump sum, if you put £80 in your pension, you may save up to an extra 40% of the gross in income tax (with the Government contributing 20%), which is £40, and be able to take out £25 tax free. For a cost of £15 (£80 less £40 less £25), you have an extra £75 in your pension. No doubt others more knowledgeable than me in this area will comment.

Indeed - have used this nice ploy many times.

1) Put 16000 into pension - HMRC make it up to 20000. Pension fund has increased by 20000 and has cost 16000.

2) Claim additional relief as a 40% taxpayer.-pension has increased by 20000 and has cost a net 12000.

3) Take 25% tax free cash - pension fund has increased by 15000 and has a net cost of 7000.

This is based on marginal relief of 40%.

Yes, my example used a marginal rate of 60%, due to the loss of personal allowance, so the benefit is even more significant. But you have to be eligible to take the lump sum out tax free.

FatherTireseus

Remember if you are making pension contributions as well as the annual £40k limit (with provision for carry back of unused allowance from the last three years) there is a 'lifetime allowance' limit of £1.0731m, which is going to be fixed until 2026. That may not be an issue, and even if it is, it won't kick in until you start to draw a pension. But it's there to limit the amount of tax relief the government has to fork out on. 

FatherTireseus

[Deleted User] said:

Jeremy535897 said:

If you are over 55 and you are able to take 25% of a contribution out as a tax free lump sum, if you put £80 in your pension, you may save up to an extra 40% of the gross in income tax (with the Government contributing 20%), which is £40, and be able to take out £25 tax free. For a cost of £15 (£80 less £40 less £25), you have an extra £75 in your pension. No doubt others more knowledgeable than me in this area will comment.

Indeed - have used this nice ploy many times.

1) Put 16000 into pension - HMRC make it up to 20000. Pension fund has increased by 20000 and has cost 16000.

2) Claim additional relief as a 40% taxpayer.-pension has increased by 20000 and has cost a net 12000.

3) Take 25% tax free cash - pension fund has increased by 15000 and has a net cost of 7000.

This is based on marginal relief of 40%.

Interesting.... but doesn't that fall foul of the £4k MPAA rules which limit you to pension contributions of £4k per annum once you have started to access pensions flexibily?  Apologies if I have misunderstood. 

Dazed_and_C0nfused

Not if you only take TFLS.