Interest exemption if pension contributions put pay below 50k?

MattMontreal
MattMontreal Posts: 56
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edited 21 October 2023 at 10:40AM in Savings & investments
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


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  • surreysaver
    surreysaver Posts: 3,967
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    Assuming your pension contributions are paid before tax, yes.  Don't forget income from savings interest pushes your income back up though 
    I consider myself to be a male feminist. Is that allowed?
  • ColdIron
    ColdIron Posts: 8,621
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    edited 21 October 2023 at 11:20AM
    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
    ColdIron Posts: 8,621
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    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
    zagfles Posts: 20,170
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    edited 21 October 2023 at 1:03PM
    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.

  • Is there any calculator or something out there where you can just input numbers to work it out?
  • Much clearer - thanks for the info all!
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