Lump sum Pensions

Simplicity77

Thanks Xylo. It's rather daunting the HMRC website. So much to look out for.

Sal was £45k
Phi termination is £50k (not disability offer so subject to tax)(but possible £90K if I add savings or negotiate a higher settlement)

£11k in pension for 22/23.

I thought £40k was going to be my limit but if I go over £100-£124k this would reduce to £20k worst case according to online tax calculators tell me I can claim, but HMRC calculators are asking if my earnings were below higher amounts. proper confusing.

I think my tax relief expectations have just fallen off a cliff but is the PHI settlement classed as earnings??

xylophone

You need to have regard to "relevant earnings" for pension contribution purposes.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

Savings income is NOT relevant earnings.

Your salary is relevant earnings.

As for the PHI settlement, it counts as relevant earnings if 

 payments paid by the employer whilst you are still in employment.

You need to clarify the nature of the PHI payment.

You then need to consider the annual allowance and whether "carry forward" is available in your circumstances.

See

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

Dazed_and_C0nfused

And if you are contributing to a personal pension or SIPP using the relief at source method then there are two aspects of the tax relief.

Firstly 25% is added to your payment to make the gross contribution.  So say you paid £20,000 then the pension company, courtesy of HMRC, adds £5,000 in basic rate tax relief giving you a fund of £25,000.

This then increases your basic rate tax band by £25,000.

So in a very basic scenario you might have taxable earnings/pension income of say £65,000 and your basic rate threshold is normally £50,270 but that is increased to £75,270 by the relief at source contribution.

So instead of paying 40% tax on £14,730 (£65,000 less £50,270) you pay 20% tax on everything so the pension contribution has saved you £2,946 in personal income tax (£14,730 taxed at 20% instead of 40%).

The above example assumes there is no HICBC involved and the person isn't Scottish resident for tax purposes.