Redundancy, 60% tax & Annual Allowance

Snot

Hi, I'm being made redundant and after taking into account carry forward I will end up in the 100-125k bracket so will lose some of my personal allowance, hence an effective tax rate of 60%.
I was reading on the M&G site that sometimes it makes sense to exceed the AA to avoid the personal allowance tax trap.
Presumably I would declare the AA excess and pay 40%.

Or am I totally misunderstanding this ?

Jeremy535897

The very short answer is that you can do that, although there are complex issues, but first check whether the current £60,000 annual allowance plus anything brought forward will suffice.

Snot

Jeremy535897 said:

The very short answer is that you can do that, although there are complex issues, but first check whether the current £60,000 annual allowance plus anything brought forward will suffice.

My calculations already account for carryover and this years increase of AA to 60k.

Jeremy535897

Have a look at this:
https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/annual-allowance

Snot

Jeremy, that for the link.

I think this is the key statement:
"annual allowance excess.......it will not lead to a high income child benefit tax charge or loss of the personal allowance etc."

Jeremy535897

Snot said:

Jeremy, that for the link.

I think this is the key statement:
"annual allowance excess.......it will not lead to a high income child benefit tax charge or loss of the personal allowance etc."

The reason is that the annual allowance charge is a standalone charge, and therefore does not add to adjusted net income for the purposes of the withdrawal of personal allowance, but the excess contribution does reduce ANI.

Prior to the removal of the lifetime allowance, there were other problems, and remember that you are effectively only getting 20% relief on the contribution, and will pay tax on the extra pension it generates.