Can i pay into pension to reduce my higher rate tax on 'other' income 1 March at 9:40AM in Cutting tax 6 replies 268 views

rnj

Hello, looking for some help on pension tax credit.

I currently have income from:
Salary
Survivor Pension
Rental Income (first year 2022/23) not in a ltd company

Altogether this puts  me into higher rate tax.
Out of this I know that the Salary is the only 'relevant earnings'.
I'm concerned that the rental profit will be taxed at 40%. If I pay into a pension, does this reduce my taxable income or am I doomed to pay 40% tax regardless?

I'm unmarried so can't do anything there.

Dazed_and_C0nfused

rnj said:

Hello, looking for some help on pension tax credit.

I currently have income from:
Salary
Survivor Pension
Rental Income (first year 2022/23) not in a ltd company

Altogether this puts  me into higher rate tax.
Out of this I know that the Salary is the only 'relevant earnings'.
I'm concerned that the rental profit will be taxed at 40%. If I pay into a pension, does this reduce my taxable income or am I doomed to pay 40% tax regardless?

I'm unmarried so can't do anything there.

Most pension contributions don't reduce taxable income.  But they do increase your basic rate tax band, meaning more income can be taxed at basic rate and less at higher rate.

But to understand this correctly you need to know which method you will use to get money into the pension as they all work slightly differently.

The three usual options are,
Net pay (workplace schemes can use this)

Relief at source (either workplace scheme of personal contribution to a SIPP or personal pension)

Salary sacrifice (some workplace schemes use this)

So step one is to find out which method you will be using.

rnj

Thanks, I pay a workplace salary sacrifice scheme but I also pay as much as I can into a SIPP up to the annual allowance.

Dazed_and_C0nfused

Are you still higher rate after the salary sacrifice and SIPP contributions 🤔

rnj

 Dazed_and_C0nfused said:

Are you still higher rate after the salary sacrifice and SIPP contributions 🤔

I will not be, thanks. I thought the rental part would be in some sort of separate 'pool' for tax. 
Guess It will become clear when i do the tax return.

Jeremy535897

No it is not, but you cannot pay more than your relevant earnings into a pension scheme, and it is not usually sensible to pay more into your pension scheme (employer and employee contributions) than the annual allowance.

rnj

Jeremy535897 said:

No it is not, but you cannot pay more than your relevant earnings into a pension scheme, and it is not usually sensible to pay more into your pension scheme (employer and employee contributions) than the annual allowance.

Thanks yea, I make sure not to pay more than my relevant earnings in