How much tax do I need to pay

sultan123

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

Then yes your Personal Allowance would be intact.

Your taxable income would be £110,500 and your adjusted net income would be £98,000.

Ok but the tax is paid on 98k going off what you said about SIPP?

No, not at all, why do you think that.

All £110,500 is taxable.

You pay £10,000 to the SIPP provider and they add £2,500 in pension tax relief giving you a pension fund of £12,500.

This £12,500 reduces your adjusted net income by £12,500 meaning you will retain your Personal Allowance in full.

But you still have taxable income of £110,500.  The first £12,570 is covered by your Personal Allowance and the remaining £97,930 is taxed.

You get a bigger basic rate band because of the SIPP contribution so more is taxed at 20% and less at 40%.

And the £500 interest is taxed at 0%.

Ah ok all makes sense now thanks so much.

On a side note, do you invest the SIPP contributions into investments and hope they grow? 

Dazed_and_C0nfused

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

Then yes your Personal Allowance would be intact.

Your taxable income would be £110,500 and your adjusted net income would be £98,000.

Ok but the tax is paid on 98k going off what you said about SIPP?

No, not at all, why do you think that.

All £110,500 is taxable.

You pay £10,000 to the SIPP provider and they add £2,500 in pension tax relief giving you a pension fund of £12,500.

This £12,500 reduces your adjusted net income by £12,500 meaning you will retain your Personal Allowance in full.

But you still have taxable income of £110,500.  The first £12,570 is covered by your Personal Allowance and the remaining £97,930 is taxed.

You get a bigger basic rate band because of the SIPP contribution so more is taxed at 20% and less at 40%.

And the £500 interest is taxed at 0%.

Ah ok all makes sense now thanks so much.

On a side note, do you invest the SIPP contributions into investments and hope they grow? 

If the SIPP is for a long period then normally yes.

With a SIPP there will be thousands (or tems of thousands) of options so you will need to do some research before choosing your investments.

Or engage an IFA (not a financial advisor)