Pension contributions to avoid HR tax and HICBC

gtat

Hello,

I'm looking to pay enough tax to avoid paying the Higher Income Child Benefit Charge and any Higher Rate tax in this tax year. I'm finding the situation slightly confusing as I changed jobs a couple of months ago and also my new job pays 4 weekly (not monthly). Situation as I understand it:

P45 from Civil Service job (April 2021 to Feb 2022):
Total pay to date: £43,627.53

Wage slips from new job up to 12th March:
Taxable pay to date: £6218.23

Estimated pay for 13th March 2022 to 5th April 2022: £3000

Therefore total earnings this tax year = £52845.76

So my understanding is I can contribute £3k to a SIPP and I will avoid the HICBC, is that correct?

Many thanks.

Dazed_and_C0nfused

If you have no other taxable income at all and are on the standard/emergency tax code of 1257L then you only need to pay £2,197 into a SIPP.

The pension company will add £549 in basic rate tax relief making a gross contribution of £2,746.

Which will reduce your adjusted net income to £50,099.

Your basic rate band will also be increased from £37,700 to £40,446 meaning no 40% tax would ultimately be due.

Corrected to show 40% not 49% 😳

gtat

Dazed_and_C0nfused said:

If you have no other taxable income at all and are on the standard/emergency tax code of 1257L then you only need to pay £2,197 into a SIPP.

The pension company will add £549 in basic rate tax relief making a gross contribution of £2,746.

Which will reduce your adjusted net income to £50,099.

Your basic rate band will also be increased from £37,700 to £40,446 meaning no 49% tax would ultimately be due.

Thank you! My tax code is 1289L (possibly reflecting the working from home expenses?) - does that affect the figures you stated?

Dazed_and_C0nfused

You need to check what the code consists of as a normal Covid-19 WFH code would be 1288L, not 1289L.

But it will reduce your taxable income and your adjusted net income so less pension needs to be paid.

gtat

Thanks for the help!

Thinking about this further, I included "Estimated pay for 13th March 2022 to 5th April 2022: £3000"

However, I won't receive this payment until mid-April as I get paid every four weeks. So I assume I should exclude it from my sums, as it isn't being paid this tax year? And therefore I will be under the threshold for both HR tax and the HICBC without any additional SIPP payments?

Marcon

gtat said:

Thanks for the help!

Thinking about this further, I included "Estimated pay for 13th March 2022 to 5th April 2022: £3000"

However, I won't receive this payment until mid-April as I get paid every four weeks. So I assume I should exclude it from my sums, as it isn't being paid this tax year? And therefore I will be under the threshold for both HR tax and the HICBC without any additional SIPP payments?

You might like to check with your employer what will be shown on your P60 - that could be important.

gtat

Thank you. Payroll have confirmed only by pay up to 12th March will be included on my P60.

Therefore my pay this tax year is £49,846, which I think means I am within the BR rate and do not need to pay the HICBC.