Trying to understand how much to pay into private pension - getting confused

ChrisFTB

Evening,

Sorry as there are several similar threads but I remain unclear about managing my income to mitigate 40% tax and mitigate the HICBC.

Public Sector Role

Taxable Pay in Tax Year (22-23) - £65,482.86 (presume this does not include DB pension contributions as these are not taxable?)

I have been paying £410 net into a private pension monthly - £4920 yearly (£6150 grossed up)

Questions:

1) How much do I need to pay into my private pension (not gross amount) to bring my earnings below 40% tax threshold and HICBC threshold?

2) If I make this payment now, can I request that it forms part of my pension allowance for the 2022-23 tax year?

3) If I make this payment now, am I too late to bring my adjusted net income (relevant for HICBC) down for 2022-23?

4) I then need to complete a self-assessment to obtain the additional 20%?

Am I missing anything I need to consider?

Many thanks,

C

eskbanker

It's too late to do anything now for 2022/23, unless you want to do something charitable via Gift Aid:

https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/giving-charity#toc-can-i-carry-back-gift-aid-donations-

Dazed_and_C0nfused

1.  You can't, that possibility ended on 5 April 2023.

2.  See 1.

3.  Yes

4.  There is no "additional 20%".  Any extra tax relief would have depended on your overall tax position.  Being a higher rate payer doesn't mean you get an extra 20%.  For example you might have contributed £6k (gross) but only paid higher rate tax on say £2k so higher rate tax relief would been limited by that.  The gross RAS contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.

Anyone liable to HICBC needs to complete a Self Assessment return and any higher rate relief due on the £6,150 you did contribute will be taken into account in your Self Assessment calculation.

Also, even if you had been in time to contribute more for 2022-23 you haven't supplied sufficient info to provide an accurate answer.  HICBC is based on your adjusted net income, not taxable income.  This means things like (taxable) savings interest or dividends need to be factored in even if they are only taxed at 0%.

ChrisFTB

Dazed_and_C0nfused said:

1.  You can't, that possibility ended on 5 April 2023.

2.  See 1.

3.  Yes

4.  There is no "additional 20%".  Any extra tax relief would have depended on your overall tax position.  Being a higher rate payer doesn't mean you get an extra 20%.  For example you might have contributed £6k (gross) but only paid higher rate tax on say £2k so higher rate tax relief would been limited by that.  The gross RAS contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.

Anyone liable to HICBC needs to complete a Self Assessment return and any higher rate relief due on the £6,150 you did contribute will be taken into account in your Self Assessment calculation.

Also, even if you had been in time to contribute more for 2022-23 you haven't supplied sufficient info to provide an accurate answer.  HICBC is based on your adjusted net income, not taxable income.  This means things like (taxable) savings interest or dividends need to be factored in even if they are only taxed at 0%.

Thanks for this - I have not had to consider this previously and think i got confused having read about previously unused pension allowances being carried over.

So, given I can't do anything about last year, I need to figure out this year. Based on the previous year's figures of Taxable Pay being £65,482.86, would i need to make a gross contribution of £15482.86 which would be £12386.29 to the pension which would then add the 20% government tax relief?

Dazed_and_C0nfused

ChrisFTB said:

Dazed_and_C0nfused said:

1.  You can't, that possibility ended on 5 April 2023.

2.  See 1.

3.  Yes

4.  There is no "additional 20%".  Any extra tax relief would have depended on your overall tax position.  Being a higher rate payer doesn't mean you get an extra 20%.  For example you might have contributed £6k (gross) but only paid higher rate tax on say £2k so higher rate tax relief would been limited by that.  The gross RAS contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.

Anyone liable to HICBC needs to complete a Self Assessment return and any higher rate relief due on the £6,150 you did contribute will be taken into account in your Self Assessment calculation.

Also, even if you had been in time to contribute more for 2022-23 you haven't supplied sufficient info to provide an accurate answer.  HICBC is based on your adjusted net income, not taxable income.  This means things like (taxable) savings interest or dividends need to be factored in even if they are only taxed at 0%.

Thanks for this - I have not had to consider this previously and think i got confused having read about previously unused pension allowances being carried over.

So, given I can't do anything about last year, I need to figure out this year. Based on the previous year's figures of Taxable Pay being £65,482.86, would i need to make a gross contribution of £15482.86 which would be £12386.29 to the pension which would then add the 20% government tax relief?

Not quite.

If your only taxable income is £65,482 then you would need to contribute £15,383* as a gross RAS contribution to avoid HICBC.

That would mean you pay £12,306.40 and the pension company adds £3,076.60 in basic rate relief.

You would also get higher rate relief on the majority of that contribution as your basic rate band would be increased by £15,383.

*HICBC is charged once your adjusted net income is £50,100 or more.

ChrisFTB

Dazed_and_C0nfused said:

ChrisFTB said:

Dazed_and_C0nfused said:

1.  You can't, that possibility ended on 5 April 2023.

2.  See 1.

3.  Yes

4.  There is no "additional 20%".  Any extra tax relief would have depended on your overall tax position.  Being a higher rate payer doesn't mean you get an extra 20%.  For example you might have contributed £6k (gross) but only paid higher rate tax on say £2k so higher rate tax relief would been limited by that.  The gross RAS contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.

Anyone liable to HICBC needs to complete a Self Assessment return and any higher rate relief due on the £6,150 you did contribute will be taken into account in your Self Assessment calculation.

Also, even if you had been in time to contribute more for 2022-23 you haven't supplied sufficient info to provide an accurate answer.  HICBC is based on your adjusted net income, not taxable income.  This means things like (taxable) savings interest or dividends need to be factored in even if they are only taxed at 0%.

Thanks for this - I have not had to consider this previously and think i got confused having read about previously unused pension allowances being carried over.

So, given I can't do anything about last year, I need to figure out this year. Based on the previous year's figures of Taxable Pay being £65,482.86, would i need to make a gross contribution of £15482.86 which would be £12386.29 to the pension which would then add the 20% government tax relief?

Not quite.

If your only taxable income is £65,482 then you would need to contribute £15,383* as a gross RAS contribution to avoid HICBC.

That would mean you pay £12,306.40 and the pension company adds £3,076.60 in basic rate relief.

You would also get higher rate relief on the majority of that contribution as your basic rate band would be increased by £15,383.

*HICBC is charged once your adjusted net income is £50,100 or more.

Thanks so much. Can I ask one more thing?

I am still unclear on "You would also get higher rate relief on the majority of that contribution as your basic rate band would be increased by £15,383."

Why would it be the majority of the contribution and not all? Sorry!

[Deleted User]

ChrisFTB said:

Dazed_and_C0nfused said:

ChrisFTB said:

Dazed_and_C0nfused said:

1.  You can't, that possibility ended on 5 April 2023.

2.  See 1.

3.  Yes

4.  There is no "additional 20%".  Any extra tax relief would have depended on your overall tax position.  Being a higher rate payer doesn't mean you get an extra 20%.  For example you might have contributed £6k (gross) but only paid higher rate tax on say £2k so higher rate tax relief would been limited by that.  The gross RAS contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.

Anyone liable to HICBC needs to complete a Self Assessment return and any higher rate relief due on the £6,150 you did contribute will be taken into account in your Self Assessment calculation.

Also, even if you had been in time to contribute more for 2022-23 you haven't supplied sufficient info to provide an accurate answer.  HICBC is based on your adjusted net income, not taxable income.  This means things like (taxable) savings interest or dividends need to be factored in even if they are only taxed at 0%.

Thanks for this - I have not had to consider this previously and think i got confused having read about previously unused pension allowances being carried over.

So, given I can't do anything about last year, I need to figure out this year. Based on the previous year's figures of Taxable Pay being £65,482.86, would i need to make a gross contribution of £15482.86 which would be £12386.29 to the pension which would then add the 20% government tax relief?

Not quite.

If your only taxable income is £65,482 then you would need to contribute £15,383* as a gross RAS contribution to avoid HICBC.

That would mean you pay £12,306.40 and the pension company adds £3,076.60 in basic rate relief.

You would also get higher rate relief on the majority of that contribution as your basic rate band would be increased by £15,383.

*HICBC is charged once your adjusted net income is £50,100 or more.

Thanks so much. Can I ask one more thing?

I am still unclear on "You would also get higher rate relief on the majority of that contribution as your basic rate band would be increased by £15,383."

Why would it be the majority of the contribution and not all? Sorry!

The higher rate of tax kicks in at 50270. You start to lose child benefit above 50100 ANI. On a gross contribution of 15383 all but 170 would attract relief at 40%. (50270 - 50100)

Dazed_and_C0nfused

Your Personal Allowance will be £12,570 and the standard basic rate band is £37,700 so higher rate tax is only normally payable on income above £50,270.

Your basic rate band will be increased by £15,383 to £53,083.

But you would only be paying higher rate tax on £15,212 of your income so contributing £15,383 is more than you need to avoid higher rate tax.

But if you only contributed £15,212 you would remain liable to a (small) High Income Child Benefit Charge.

ChrisFTB

[Deleted User] said:

ChrisFTB said:

Dazed_and_C0nfused said:

ChrisFTB said:

Dazed_and_C0nfused said:

1.  You can't, that possibility ended on 5 April 2023.

2.  See 1.

3.  Yes

4.  There is no "additional 20%".  Any extra tax relief would have depended on your overall tax position.  Being a higher rate payer doesn't mean you get an extra 20%.  For example you might have contributed £6k (gross) but only paid higher rate tax on say £2k so higher rate tax relief would been limited by that.  The gross RAS contribution increases your basic rate band meaning more income is taxed at 20% and less at 40%.

Anyone liable to HICBC needs to complete a Self Assessment return and any higher rate relief due on the £6,150 you did contribute will be taken into account in your Self Assessment calculation.

Also, even if you had been in time to contribute more for 2022-23 you haven't supplied sufficient info to provide an accurate answer.  HICBC is based on your adjusted net income, not taxable income.  This means things like (taxable) savings interest or dividends need to be factored in even if they are only taxed at 0%.

Thanks for this - I have not had to consider this previously and think i got confused having read about previously unused pension allowances being carried over.

So, given I can't do anything about last year, I need to figure out this year. Based on the previous year's figures of Taxable Pay being £65,482.86, would i need to make a gross contribution of £15482.86 which would be £12386.29 to the pension which would then add the 20% government tax relief?

Not quite.

If your only taxable income is £65,482 then you would need to contribute £15,383* as a gross RAS contribution to avoid HICBC.

That would mean you pay £12,306.40 and the pension company adds £3,076.60 in basic rate relief.

You would also get higher rate relief on the majority of that contribution as your basic rate band would be increased by £15,383.

*HICBC is charged once your adjusted net income is £50,100 or more.

Thanks so much. Can I ask one more thing?

I am still unclear on "You would also get higher rate relief on the majority of that contribution as your basic rate band would be increased by £15,383."

Why would it be the majority of the contribution and not all? Sorry!

The higher rate of tax kicks in at 50270. You start to lose child benefit above 50100 ANI. On a gross contribution of 15383 all but 170 would attract relief at 40%. (50270 - 50100)

Ah. Got it

[Deleted User]

Dazed_and_C0nfused said:

Your Personal Allowance will be £12,570 and the standard basic rate band is £37,700 so higher rate tax is only normally payable on income above £50,270.

Your basic rate band will be increased by £15,383 to £53,083.

But you would only be paying higher rate tax on £15,212 of your income so contributing £15,383 is more than you need to avoid higher rate tax.

But if you only contributed £15,212 you would remain liable to a (small) High Income Child Benefit Charge.

Apologies for jumping in!

Dazed_and_C0nfused

[Deleted User] said:

Dazed_and_C0nfused said:

Your Personal Allowance will be £12,570 and the standard basic rate band is £37,700 so higher rate tax is only normally payable on income above £50,270.

Your basic rate band will be increased by £15,383 to £53,083.

But you would only be paying higher rate tax on £15,212 of your income so contributing £15,383 is more than you need to avoid higher rate tax.

But if you only contributed £15,212 you would remain liable to a (small) High Income Child Benefit Charge.

Apologies for jumping in!

Not enough posts to keep us entertained!!