Higher rate tax relief

allyl22

According to HMRC it looks like I will be paying £8000 of higher rate tax this tax year  . How much would I need to pay into my pension to reduce that amount of higher rate tax to £0.

Thanks

Pat38493

In simple terms (unless I am missing something in the question) - £20,000 more than whatever you are paying at the moment.

In a simple salary type case, you will need to reduce your taxable income below about £50K to avoid paying higher rate tax.

allyl22

Apologies , I didn't think it was a s simple as that. Been googling about and couldn't see the wood from the trees. Thanks 

Dazed_and_C0nfused

allyl22 said:

According to HMRC it looks like I will be paying £8000 of higher rate tax this tax year  . How much would I need to pay into my pension to reduce that amount of higher rate tax to £0.

Thanks

It all depends on which method is used to get money into the pension.

Until you know that you can't answer the question.

Net pay

Relief at source

Salary sacrifice

Are the normal options

af1963

>> In a simple salary type case, you will need to reduce your taxable income below about £50K to avoid paying higher rate tax.<<

Also depends whether you live in Scotland or not. Lower starting point for 40% in Scotland.

And by "this year", if you actually mean the year for which you might be currently doing a tax return, it's too late to pay anything in.  If your accountant's figure is a forecast for the current tax year ending next April, that's fine.

allyl22

It would be a contribution from my savings and yes I am in Scotland.

allyl22

Also I mean tax year ending April 23

Dazed_and_C0nfused

It would be a contribution from my savings and yes I am in Scotland.

Presumably you mean relief at source then.

According to HMRC it looks like I will be paying £8000 of higher rate tax this tax year

Personally I would ignore that and calculate your own figures, you are far more likely to know the correct position than HMRC.

But if we use that £8,000 figure it means you have £20,000 in the higher rate band.

So if you add £16,000 to a relief at source pension like a SIPP then that will have £4,000 in basic rate tax relief added making a gross contribution of £20,000.

And your basic rate band will be increased by £20,000 meaning more income is taxed at 20% and less at 40%.

Albermarle

allyl22 said:

It would be a contribution from my savings and yes I am in Scotland.

Do you also have regular contributions from your salary to a workplace pension? Or are you maybe self employed?

leosayer

Albermarle said:

allyl22 said:

It would be a contribution from my savings and yes I am in Scotland.

Do you also have regular contributions from your salary to a workplace pension? Or are you maybe self employed?

A good question.

A few years back, I had a savings that I wanted to put into a pension. The most efficient way to do that was to increase the % of my salary paid into my work pension via salary sacrifice and then live off the savings instead.

Qyburn

Minor detail but if reverse engineering from that £8K higher rate tax, remember the rate in Scotland is 41% not 40%.