Five Year Fix, Five Year Plan

KajiKita

Well done on all the ££ shufflings and cogitations 😊

I totally ‘get’ the expensive hair cut thing. It took me YEARS to find someone who could cut my fine, plentiful, wavy hair in a way I could bear to live with it. I have now known my hairdresser longer than Mr KK by some years. Haircuts would be the last thing to go …..

KK

South_coast

Question please, if I may? You mention setting your pension contributions to take advantage of the 40% tax bracket, presumably that's with regard to the additional tax relief? Can you claim back the extra on ALL the pension contributions you make in a tax year, or just the ones on income that's taxed at 40%? I've been trying to work it out for ages and can't seem to find the answer!

Merlin's_Beard

South_coast said:

Question please, if I may? You mention setting your pension contributions to take advantage of the 40% tax bracket, presumably that's with regard to the additional tax relief? Can you claim back the extra on ALL the pension contributions you make in a tax year, or just the ones on income that's taxed at 40%? I've been trying to work it out for ages and can't seem to find the answer!

I am NO expert, because this is the first year I've had to deal with this, but I'm fairly sure you can only claim 40% back on income that was originally taxed at 40%? Because if your pension is salary sacrifice you don't have to worry about any of this because you never pay the tax in the first place.

So I think it would work like:

you earn £60,000, with a normal tax code (1250L)

everything you earn over £50,271 is taxed at 40% (so £9,729 but after 40% tax, you actually get £5,837.40 paid to you)

So that means £9,729 can be put in a pension with 40% tax relief?

Where I get confused is how that £9729 breaks down.

Do I contribute £5837.40 net (60%), get £1945.80 relief at source (20%), then get another £1945.80 (20%) via my taxcode but then that's not actually in my pension? Or does it work differently to that?

(I really need a 'Finance For Dummies Who Don't Find "Just Claim It Back!" That Intuitive An Instruction', but I suspect I'm just going to call HMRC and sound like a derp at some point because I overthink and need to know exactly what's going on.)

South_coast

🤣 Thank you! Clear as mud then, like most things tax!

badmemory

I think, with the emphasis on the think.  The pension co only add 20% to your payment & HMRC then refund the other 20% direct to you (eventually).  The bit you need to keep an eye on is if you only do it the one year you need to check your tax code as they will probably adjust it as if you are doing it every year.  Do you remember the advert about tax not being taxing.  I would love to have a conversation with whoever wrote it. 

If you are earning over £50k I think you are also supposed to file self assessment every year anyway.  At least self assessment is better than the simple assessment that I am stuck with. 

redofromstart

I think the requirement for compulsory self assessment is normally for earning 100k, unless you meet other criteria and need to complete one.

pensions, mine is salary sacrifice and deducted from my gross so the 40% is recovered that way. £100 contribution to my fund costs me £60 (ignoring NI) net.

some work pensions take it without the higher tax saving, so the £100 us deducted as £80, and you can claim the extra tax relief via HMRC. If you routinely do this they amend your tax code. Mr Redos was this way. You can backdate it a few years. Equally if you make direct payments to a pension fund, your £100 is normally credited as £120 and you can claim the extra tax relief back

Hope this helps!

badmemory

I thought it was £50k because that is when it starts affecting your child benefit.  Personally I believe it is easier to file self assessment than trying to sort out their mess later.  I will however look forward to the year when they actually get my simple assessment correct.  I file SA for a friend too & we have both been getting our state pensions for 12 years & every year (until they stopped me doing mine) they have got the state pension figure wrong & every year I have put on the forms why they have it wrong, because the DWP gives them the wrong figure.  Talk about left hand & right hand.

FlacosFloozie

I hate dealing with HMRC- they've got my tax code right once since 2008! It's never a massive differnce but theres always either a cheque or adjustment to my personal allowance.

When I spoke to them about my pension, they adjusted my personal allowance for the extra 20%. I've since increased my contributions so will need to phone them again. Previously they threatned me with self asessment but I'm actually thinking that would be easier going forward.

savingholmes

Good for you on the pension. I am unclear on mine too but think work sort it.

Good to practice self care. Your purchases sound worth it especially comedy gig.

killerpeaty

Just caught up about... 5 months worth so this may be very out of date but I love board games. If you ever want a board game buddy I'm here for it.

As for your pension, I am confused as to whether you are salary sacrificing or not. As you say, you would have no issue if you have salary sacrifice. If this is into a different style of pension then you would be right, the net is what needs to be contributed with the 20% uplift then you claim an extension to your tax bands.

Most importantly, hows the cat doing?