Paying tax on Wages and gov pension

eric4395

Apologies not really up to date in my knowledge of tax and pensions. I have been receiving my gov pension since last dec approx £800 pm  and have now received a tax bill at 41%  of the total , as I am still working at the moment. I intend to retire next year is there anyway you can reduce or claw back some of the tax I have paid on  my gov pension over the last 12 months. Is it possible to pay a lump sum as an AVC  say £10,000 into another private pension ( or even my current works pension ?) . Would it be worthwhile looking at  doing this ?

Dazed_and_C0nfused

You can't change anything for 2020:21 now but you may be able to minimise 40% tax in 2021:22 by additional pension contributions.

This can be very tax efficient, for example paying £10,000 into a relief at source scheme becomes £12,500 in your pension fund and you may get a personal tax reduction of another £2,500 so the actual cost of the £12,500 in your pension fund could be just £7,500.

May be even more beneficial as a Scottish taxpayer.

But tax is all about the detail and you need to provide more information for anyone to know if that would actually be possible and also if you would get that tax benefit.

Also, what tax code is now being used for the pension?

p00hsticks

Assuming to the State Pension... it won;t help going back, but if you could afford it I beleive you can stop claiming it going forward until you stop working, and will then get an increased amount for the time you have deferred it.

https://www.gov.uk/deferring-state-pension

eric4395

This was a simple assessment tax calculation for 2020/21. So as my  first 4 payments were just paid into my bank account from dec20 - Mar 21 they had not been taxed. The payments totalled just over £3000 and the tax I owe them is over £1000.. This sum has just been added to what I earned in 2020/21 tax year so therefore taxed at 41%.  I will also have from March 2021 till March 2022 to pay back as well next year so that will work out at over £9000 gross and a tax bill of over £3000. So  would I be able to claw some of that tax back putting a lump sum (roughly what I have received in my gov pension ie £12,000)  into another pension and how easy is this to set up. 

Dazed_and_C0nfused

You really should have had an updated tax code for 2021:22 to try and minimise any extra tax payable after the tax year ends.

It is very easy to set up a personal pension or SIPP and you would automatically get 25% added to any contribution you make i.e. if you paid in £4,000 it would become a pension fund of £5,000.

Your basic rate tax band would also be increased by the gross amount (£5,000) meaning more of your income is taxed at basic rate and less at higher rate.

If you want to hot the sweet spot for tax relief you would need to calculate your expected tax liability for 2021:22 now to work out how much will be taxed at the higher rate.  You can then use this information to help decide how much to contribute to the pension.

NB. Don't forget State Pension is usually paid 13 times a year, not monthly.

You must have earned (wages not pension income) the gross amount you wish to contribute.

eric4395

p00hsticks said:

Assuming to the State Pension... it won;t help going back, but if you could afford it I beleive you can stop claiming it going forward until you stop working, and will then get an increased amount for the time you have deferred it.

https://www.gov.uk/deferring-state-pension

I did look into deferring my state pension before I started receiving it but by my calculations it was over 20 years before you actually ended up gaining out of it so decided not to go down that route.