Interest exemption if pension contributions put pay below 50k?

MattMontreal

Hi all,

Hopefully a simple one: at my new job I earn a bit more than 50k, which would normally put me in the 40% bracket, but I'm contributing the maximum to my workplace's private pension, which puts me a bit below 50k. 

Am I right in thinking that for purposes of interest on Savings accounts my tax-exempt rate would then be 1000 (basic rate) instead of 500 (40%)?

Thanks!
Matthew

surreysaver

Assuming your pension contributions are paid before tax, yes.  Don't forget income from savings interest pushes your income back up though 

ColdIron

Yes. Your pension contributions raise the usual £50,270 threshold

BTW if you pension contributions take you from a bit above £50k to a bit below it are you sure you are making the 'maximum' contribution. If your employer limits the amount you may be able to make direct payments to it or open a SIPP

ColdIron

surreysaver said:

Assuming your pension contributions are paid before tax, yes.

It's a yes even if paid from taxed salary

Salary sacrifice directly reduces your salary so it might be below the higher rate threshold

If paying from taxed salary HMRC will increase the higher rate threshold from £52,270 which again might put your salary below it

The net affect on your PSA is the same

zagfles

MattMontreal said:

Hi all,

Hopefully a simple one: at my new job I earn a bit more than 50k, which would normally put me in the 40% bracket, but I'm contributing the maximum to my workplace's private pension, which puts me a bit below 50k. 

Am I right in thinking that for purposes of interest on Savings accounts my tax-exempt rate would then be 1000 (basic rate) instead of 500 (40%)?

Thanks!
Matthew

It depends how much the "bit" is.

If eg your earnings after pension conts are taken off is £49,900, then you'd only have £500 tax free interest allowance. Because if you earn £500 interest your total income including interest will exceed the higher rate threshold, even though you don't pay any higher rate tax.

Your total income including interest, even interest within the tax free PSA, must be within the basic rate band to get the £1000 tax free interest allowance.

pecunianonolet

Is there any calculator or something out there where you can just input numbers to work it out?

MattMontreal

Much clearer - thanks for the info all!