Reducing tax ?

Dazed_and_C0nfused

Strummer22 said:

Dazed_and_C0nfused said:

2oxb1ulm2ke6 said:

Dazed_and_C0nfused said:

Albermarle said:

Myself and my partner we are both have a £85k income this year

I think there is a misunderstanding by some posters ( including me ) . We read this as that you are both earning £85K ( so £170K in total) .

However later posts show that you earn ( not win ) £55K and your partner £30K.

Well spotted!' I definitely thought it was £170k combined income.

If total taxable income of the higher earner is sub £60k then pension contributions will be extremely tax efficient in avoiding HICBC and higher rate tax.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

Do you mean they are relief at source (RAS) contributions?

Well it sounds to me like OP has a net pay arrangement... but the terminology is ridiculously confusing and took me a while to get my head around.

Relief at source = pension provider gives you basic rate tax relief. But in my mind the "source" is my pay packet - no relief given there under RAS!

Agree about the terminology but the op did say this so it definitely sounds like RAS.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

2oxb1ulm2ke6

Dazed_and_C0nfused said:

Strummer22 said:

Dazed_and_C0nfused said:

2oxb1ulm2ke6 said:

Dazed_and_C0nfused said:

Albermarle said:

Myself and my partner we are both have a £85k income this year

I think there is a misunderstanding by some posters ( including me ) . We read this as that you are both earning £85K ( so £170K in total) .

However later posts show that you earn ( not win ) £55K and your partner £30K.

Well spotted!' I definitely thought it was £170k combined income.

If total taxable income of the higher earner is sub £60k then pension contributions will be extremely tax efficient in avoiding HICBC and higher rate tax.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

Do you mean they are relief at source (RAS) contributions?

Well it sounds to me like OP has a net pay arrangement... but the terminology is ridiculously confusing and took me a while to get my head around.

Relief at source = pension provider gives you basic rate tax relief. But in my mind the "source" is my pay packet - no relief given there under RAS!

Agree about the terminology but the op did say this so it definitely sounds like RAS.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

As I understand, our best option will be that my partner to add more money into her private pension , because she is paying that from gross.

Because I'm paying my private pension contribution from my NET (after tax) income, i'm basically losing money, that I should take home.

Am I right on this one ?

Dazed_and_C0nfused

2oxb1ulm2ke6 said:

Dazed_and_C0nfused said:

Strummer22 said:

Dazed_and_C0nfused said:

2oxb1ulm2ke6 said:

Dazed_and_C0nfused said:

Albermarle said:

Myself and my partner we are both have a £85k income this year

I think there is a misunderstanding by some posters ( including me ) . We read this as that you are both earning £85K ( so £170K in total) .

However later posts show that you earn ( not win ) £55K and your partner £30K.

Well spotted!' I definitely thought it was £170k combined income.

If total taxable income of the higher earner is sub £60k then pension contributions will be extremely tax efficient in avoiding HICBC and higher rate tax.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

Do you mean they are relief at source (RAS) contributions?

Well it sounds to me like OP has a net pay arrangement... but the terminology is ridiculously confusing and took me a while to get my head around.

Relief at source = pension provider gives you basic rate tax relief. But in my mind the "source" is my pay packet - no relief given there under RAS!

Agree about the terminology but the op did say this so it definitely sounds like RAS.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

As I understand, our best option will be that my partner to add more money into her private pension , because she is paying that from gross.

Because I'm paying my private pension contribution from my NET (after tax) income, i'm basically losing money, that I should take home.

Am I right on this one ?

No, you couldn't be more wrong to be honest.

She earns £35k and say she pays £5k under a net pay scheme.  Her taxable income will drop to £30k so she will avoid paying tax on £5k, a tax saving of £1k so that £5k pension contribution has really cost just £4k.

Let's say you earn £55k and pay £4k net into a RAS scheme.  The pension company will add £1k in basic rate tax relief so you have a pension fund of £5k for an outlay of £4k, effectively mirroring your partner.

But you have probably paid 40% tax on £4,730 of that £55k so as your £5k gross contribution increased your basic rate band by £5k you will pay 20% tax not 40% on that £4,730.  A personal tax saving of £946.

And if your total taxable income is £55k and you didn't make that pension contribution or any Gift Aid donations you would normally have to pay 50% HICBC.  Which would be £1,037 for a whole year of Child Benefit for two children.

So the real cost to you of that £5k pension fund is just £2,017.  Half of what it would cost your partner.

The above is very simplified scenario, you might have other income which would change things slightly.

[Deleted User]

Dazed_and_C0nfused said:

2oxb1ulm2ke6 said:

Dazed_and_C0nfused said:

Strummer22 said:

Dazed_and_C0nfused said:

2oxb1ulm2ke6 said:

Dazed_and_C0nfused said:

Albermarle said:

Myself and my partner we are both have a £85k income this year

I think there is a misunderstanding by some posters ( including me ) . We read this as that you are both earning £85K ( so £170K in total) .

However later posts show that you earn ( not win ) £55K and your partner £30K.

Well spotted!' I definitely thought it was £170k combined income.

If total taxable income of the higher earner is sub £60k then pension contributions will be extremely tax efficient in avoiding HICBC and higher rate tax.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

Do you mean they are relief at source (RAS) contributions?

Well it sounds to me like OP has a net pay arrangement... but the terminology is ridiculously confusing and took me a while to get my head around.

Relief at source = pension provider gives you basic rate tax relief. But in my mind the "source" is my pay packet - no relief given there under RAS!

Agree about the terminology but the op did say this so it definitely sounds like RAS.

But my pension contribution are being paid of from my NET income, it's that still okay to go ahead with ?

As I understand, our best option will be that my partner to add more money into her private pension , because she is paying that from gross.

Because I'm paying my private pension contribution from my NET (after tax) income, i'm basically losing money, that I should take home.

Am I right on this one ?

No, you couldn't be more wrong to be honest.

She earns £35k and say she pays £5k under a net pay scheme.  Her taxable income will drop to £30k so she will avoid paying tax on £5k, a tax saving of £1k so that £5k pension contribution has really cost just £4k.

Let's say you earn £55k and pay £4k net into a RAS scheme.  The pension company will add £1k in basic rate tax relief so you have a pension fund of £5k for an outlay of £4k, effectively mirroring your partner.

But you have probably paid 40% tax on £4,730 of that £55k so as your £5k gross contribution increased your basic rate band by £5k you will pay 20% tax not 40% on that £4,730.  A personal tax saving of £946.

And if your total taxable income is £55k and you didn't make that pension contribution or any Gift Aid donations you would normally have to pay 50% HICBC.  Which would be £1,037 for a whole year of Child Benefit for two children.

So the real cost to you of that £5k pension fund is just £2,017.  Half of what it would cost your partner.

The above is very simplified scenario, you might have other income which would change things slightly.

Simplified but correct. Don’t forget also that 25% of that contribution could ultimately be taken as a tax free withdrawal - £1250. No brainer!

Albermarle

But you have probably paid 40% tax on £4,730 of that £55k so as your £5k gross contribution increased your basic rate band by £5k you will pay 20% tax not 40% on that £4,730.  A personal tax saving of £946

OP - Only small issue is that you will need to inform HMRC of your pension contribution, for this to happen.