Tax on earnings/income

Hi all,
Am I right in thinking that if my husband's annual income and lump sum payments taken from pensions this year is amounts to over the personal allowance of £50,271 he will have to pay the higher tax rate of 40% on any further income he gets before April 2024?

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  • eskbanker
    eskbanker Posts: 29,799
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    Dawn1966 said:
    Am I right in thinking that if my husband's annual income and lump sum payments taken from pensions this year is amounts to over the personal allowance of £50,271 he will have to pay the higher tax rate of 40% on any further income he gets before April 2024?
    The answer is likely to be 'yes' - the personal allowance is £12,570, but £50,270 is the higher rate threshold (for most, but not all, of the UK), above which income is taxed at the 40% rate.  His tax position will be determined after the end of the tax year rather than midway through, but the taxation status of lump sums from pensions will be important, as this term is usually used for tax-free sums that don't form part of income tax calculations.

    Does your first sentence imply that the annual income is also from pensions, or is this from elsewhere, and if so, where?
  • Dawn1966
    Dawn1966 Posts: 65
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    eskbanker said:
    Dawn1966 said:
    Am I right in thinking that if my husband's annual income and lump sum payments taken from pensions this year is amounts to over the personal allowance of £50,271 he will have to pay the higher tax rate of 40% on any further income he gets before April 2024?
    The answer is likely to be 'yes' - the personal allowance is £12,570, but £50,270 is the higher rate threshold (for most, but not all, of the UK), above which income is taxed at the 40% rate.  His tax position will be determined after the end of the tax year rather than midway through, but the taxation status of lump sums from pensions will be important, as this term is usually used for tax-free sums that don't form part of income tax calculations.

    Does your first sentence imply that the annual income is also from pensions, or is this from elsewhere, and if so, where?

    Thanks so much for your reply eskbanker.

    My husband gets a full time wage from employment, and in June this year he took a tax free lump sum from one of his private pension pots. He is now wanting to take the rest of the money and realise that won't be tax free. It will take him over the £50,271 if he does take it before the end of the tax year and I told him I thought he would have to pay more than the current 20% tax rate as it will take him over that threshold.
  • molerat
    molerat Posts: 31,504
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    If he takes 1p of taxable DC pension income he will be limited to contributing £10K per year gross into any DC pension scheme.
    Have you taken pension contributions into account when calculating his total income for the year ?
  • Dawn1966
    Dawn1966 Posts: 65
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    molerat said:
    If he takes 1p of taxable DC pension income he will be limited to contributing £10K per year gross into any DC pension scheme.
    Have you taken pension contributions into account when calculating his total income for the year ?

    Hi Molerat,
    I don't understand 'DC' sorry :(
    The pension pot he wants to draw down was from years ago, he hasn't paid any contributions into it for over 20 years.
    He does pay into a work pension scheme currently but it's only about £2k a year paid into that with the employer contributing also, and yes is included in his annual wage.
    Thanks :)
  • eskbanker
    eskbanker Posts: 29,799
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    Dawn1966 said:
    My husband gets a full time wage from employment, and in June this year he took a tax free lump sum from one of his private pension pots. He is now wanting to take the rest of the money and realise that won't be tax free. It will take him over the £50,271 if he does take it before the end of the tax year and I told him I thought he would have to pay more than the current 20% tax rate as it will take him over that threshold.
    Just to be clear, he'd pay 40% instead of 20% only on that slice of income above the threshold.  Does he need all the money this tax year or can he stagger the drawdown over this tax year and the next one to avoid the higher rate tax?
  • Dawn1966
    Dawn1966 Posts: 65
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    eskbanker said:
    Just to be clear, he'd pay 40% instead of 20% only on that slice of income above the threshold.  Does he need all the money this tax year or can he stagger the drawdown over this tax year and the next one to avoid the higher rate tax?
    Thank you - I was just telling him it would only be the amount over the £50k that would be taxed at 40% and we were discussing taking some this year and some the following year, so you've clarified that which is a great help.

  • SiliconChip
    SiliconChip Posts: 1,256
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    Dawn1966 said:
    molerat said:
    If he takes 1p of taxable DC pension income he will be limited to contributing £10K per year gross into any DC pension scheme.
    Have you taken pension contributions into account when calculating his total income for the year ?


    I don't understand 'DC' sorry :(

    DC is Defined Contribution, where payments go into a pot which is used on retirement to purchase a pension, as opposed to DB, Defined Benefit, where the pension recieved is based on the salary that was being earned in a period before retirement.

  • Dawn1966
    Dawn1966 Posts: 65
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    Sorry to bring this topic up again, but just to be clear does the tax free amount he took count towards his total income for the year to March 31st 2024, or as it is was a tax free lump sum does he still have the £50,271 allowance as well?
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,694
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    Dawn1966 said:
    Sorry to bring this topic up again, but just to be clear does the tax free amount he took count towards his total income for the year to March 31st 2024, or as it is was a tax free lump sum does he still have the £50,271 allowance as well?
    For tax purposes you ignore the 25% tax free lump sum.

    Anything taken above the TFLS is taxable income.

    And the tax year ends on 5 April, not 31 March 😀
  • Dawn1966
    Dawn1966 Posts: 65
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    Dawn1966 said:
    Sorry to bring this topic up again, but just to be clear does the tax free amount he took count towards his total income for the year to March 31st 2024, or as it is was a tax free lump sum does he still have the £50,271 allowance as well?
    For tax purposes you ignore the 25% tax free lump sum.

    Anything taken above the TFLS is taxable income.

    And the tax year ends on 5 April, not 31 March 😀
    Lol oops re: the tax year - thanks, sounds good to me!

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