Avoiding Higher Rate Tax

CTFC

Hi All

I am trying to avoid tipping into higher rate tax this year with the consequent reduction in personal saving allowance I currently have a combination of sources of income including:

2 x DB pensions in payment

net rental income from a property I own

Wages from a part time job.

I was thinking that if I forecast the income in excess of 50k I can simply put that excess amount in my SIPP and HMRC will calculate any tax I owe via  self assessment and I will have kept below  the HRT threshold.

It then occurred to me that I could increase my pension contributions from the part time job from the standard 3% up to 30 or 40% and that would save me a bit of  NI as well, I recall reading here though that I am not allowed to raise contributions  on the company scheme so that I am being paid less than NMW  the job only pays £10.90 an hour  so that would give me very little leeway to increase contributions from the current standard 3%, my questions are:

Does the fact that my wage is not my only source of income mean I can increase my contributions by an amount that takes me below NMW for this job.?

If I am stuck with having to contribute into my SIPP how much do I have to contribute, the full amount of the income over the HRT threshold or 80% of it.

Appreciate your thoughts , FYI the company pensions contribution is described as Salary Exchange on the payslip , I am assuming this is the same as Salary Sacrifice.

Kind Regards

Dazed_and_C0nfused

Other income isn't relevant for NMW purposes.

Paying into a SIPP won't reduce your taxable income, it increases your basic rate band.  So you really need to know how much basic rate band you want.

Say it's £40,000, that's £2,300 above the standard £37,700.

In which case you would need to add £1,840 with the basic rate relief the provider adds making it a gross contribution of £2,300.

Albermarle

If I am stuck with having to contribute into my SIPP how much do I have to contribute, the full amount of the income over the HRT threshold or 80% of it

The maximum you can contribute is your earned income gross from your part time job.

So if you earn say £15K, you can add £12K and the SIPP provider will add £3K tax relief.

Of course as D&C says you may need to add less than that to get below the HRT threshold, but the above is the maximum you can add.

CTFC

Many thanks to the pair of you, I understand the SIPP contributions now . I dont think the maximum SIPP contribution limit is going to be an issue for me, but just to make sure I have the NMW thing right, I am paid £10.90 per hour NMW is $10.50 per hour so the maximum I can put in via the company scheme is the equivalent of 40p per hour so 3.67% and a person earning NMW seemingly cannot put anything in through the company scheme.

Cheers

Marcon

CTFC said:

Many thanks to the pair of you, I understand the SIPP contributions now . I dont think the maximum SIPP contribution limit is going to be an issue for me, but just to make sure I have the NMW thing right, I am paid £10.90 per hour NMW is $10.50 per hour so the maximum I can put in via the company scheme is the equivalent of 40p per hour so 3.67% and a person earning NMW seemingly cannot put anything in through the company scheme.

Cheers

They can put in as much as they like as a personal contribution to a company scheme (assuming the rules of the particular scheme allow it). The NMW issue arises only when contributions are paid via salary sacrifice. Have you checked if you can make personal contributions in addition to those you are paying by salary exchange?