Tax over £50'270

samps1973

Hi,

I am in a job where I was being paid 35k but found another job and my current employer offered me 50k to stay along with a 5k per year rise for a further 3 yrs taking my salary to 65k and 5k basic fuel allowance so I am currently on 55k.

I know that I'll be paying 40% tax over the £50,270. I read that I can save on tax by claiming back what I put into a pension. At the moment I pay into nest pension through my employer about £250 per month in total on my current salary. 

I think if say i earned 60k and put the net pay from10k into a pension I think I can claim the amount over the basic 20% back.

Are there any calculators or simple formulas I can use to work this out?

I guess on the 10k i would pay 40% or 4k tax and if I put this into a pension I could claim 20% of it back if that makes sense 🤔 yep I'm confused.

Also im not sure if it's worth paying extra into the pension because when they pay you I think its taxable so they'll get the tax one way or the other.

Any one else out there in the same position or can anyone give me any advice or a go to place to find out about this.

Thanks

El_Torro

Will you be a 40% tax payer when you retire? If not then you've saved 40% tax when putting money in the pension and you're only paying 20% tax when you take it out. 

In fact you're actually going to pay less than 20% tax if you take money out when retired. 25% of the withdrawal is tax free after all. 

Remember if you want to put £10k gross in your pension then you just put £8k in, the pension provider adds £2k tax relief, totaling it up to £10k. Then you claim back a further £2k from HMRC, assuming all of the money going into the pension is subject to 40% tax relief. 

Dazed_and_C0nfused

samps1973 said:

Hi,

I am in a job where I was being paid 35k but found another job and my current employer offered me 50k to stay along with a 5k per year rise for a further 3 yrs taking my salary to 65k and 5k basic fuel allowance so I am currently on 55k.

I know that I'll be paying 40% tax over the £50,270. I read that I can save on tax by claiming back what I put into a pension. At the moment I pay into nest pension through my employer about £250 per month in total on my current salary. 

I think if say i earned 60k and put the net pay from10k into a pension I think I can claim the amount over the basic 20% back.

Are there any calculators or simple formulas I can use to work this out?

I guess on the 10k i would pay 40% or 4k tax and if I put this into a pension I could claim 20% of it back if that makes sense 🤔 yep I'm confused.

Also im not sure if it's worth paying extra into the pension because when they pay you I think its taxable so they'll get the tax one way or the other.

Any one else out there in the same position or can anyone give me any advice or a go to place to find out about this.

Thanks

I don't follow the figures in bold but Nest operate a relief at source scheme so you make net contributions and they add basic rate tax relief, for example £800 from you becomes £1,000 in the pension.

That gross contribution increase your basic band by £1,000 meaning you pay less 40% tax and more 20%, in simple cases saving you another £200.  So the £1,000 in your pension only really cost you £600.

The personal tax saving can be more if it makes you eligible for Marriage Allowance or avoids HICBC.

Albermarle

Any one else out there in the same position or can anyone give me any advice or a go to place to find out about this.

Lots of people post on this, and the pensions forum on this subject. They are good resources for all tax/pension/investment issues.

Pensions, annuities & retirement planning — MoneySavingExpert Forum

As already said each contribution you make to Nest will have 25% added by Nest/HMRC automatically to give you the basic rate tax relief ( it takes a few weeks to appear I think).

Then at some point you inform HMRC of your gross contributions for the tax year, ( gross means including the basic rate tax relief)

If you are owed any higher rate tax relief, they will pay you a rebate ( it will not go in the pension) and they will adjust your tax code going forward on the assumption you make similar contributions in future. This will mean you will get the higher rate tax relief in your take home pay rather than a specific rebate.

If when your salary increases, you increase pension contributions then you just need to keep HMRC up to date.

Higher rate tax relief on pension contributions is a generous tax benefit and you should make as much use of it as you can.

penners324

Are you on salary sacrifice or relief at source? Both are possible with Nest.

Nest is OK a pension fund. Worth logging into your account and deciding what your pot is invested in.

samps1973

Thank you all for replying to my question. All the answers were very helpful.🙂

The new tax year starts next month and I am trying to think of the best way of making what I earn over the £50,270 as tax efficient as possible. My aim is to put every penny I earn over the £50,270 threshhold into the pension. My only concern is I will be earning varying amounts over the years and wonder how confusing it will be with varying tax codes.

I sent this e-mail to a company called money helper who I think are linked to hmrc and i have to wait 5 days for a response. I hope you dont mind reading through it and helping if possible. Thank you.

I am currently employed full time and my employer pays my pension contributions into Nest pensions. I recieved a 20% rebate automatically at source or with nest.

In the next tax year I will be earning more than £50,270 pa. My aim is to put anything I earn over this amount into the nest pension so that it's tax efficient. I also know that I will receive a further 20% tax rebate for anything that I pay into my pension thats over £50,270 and will have to claim this every year with a tax return.

Over the coming years I will be earning varying amounts between £50,270 and approximately £65,000 with overtime and also future agreed pay rises from my employer.

I have read online that I can claim a rebate from hmrc and I will receive a refund which will be sent to myself but I have also read that my tax code will change depending on how much I pay into my pension over the £50,270 threshold.

As I will be paying varying amounts over the years I think I would get very confused about the tax codes and would'nt really know where I stand with the varying tax codes. 

If possible could you explain how this would work please?

Also would I be able to have the option to do my tax return after each tax year in April and receive a lump sum every year depending on what amount I've earned in the that year instead of my tax code having to be changed every year.

I hope that makes sense.

Thank you

Dazed_and_C0nfused

samps1973 said:

Thank you all for replying to my question. All the answers were very helpful.🙂

The new tax year starts next month and I am trying to think of the best way of making what I earn over the £50,270 as tax efficient as possible. My aim is to put every penny I earn over the £50,270 threshhold into the pension. My only concern is I will be earning varying amounts over the years and wonder how confusing it will be with varying tax codes.

I sent this e-mail to a company called money helper who I think are linked to hmrc and i have to wait 5 days for a response. I hope you dont mind reading through it and helping if possible. Thank you.

I am currently employed full time and my employer pays my pension contributions into Nest pensions. I recieved a 20% rebate automatically at source or with nest.

In the next tax year I will be earning more than £50,270 pa. My aim is to put anything I earn over this amount into the nest pension so that it's tax efficient. I also know that I will receive a further 20% tax rebate for anything that I pay into my pension thats over £50,270 and will have to claim this every year with a tax return.

Over the coming years I will be earning varying amounts between £50,270 and approximately £65,000 with overtime and also future agreed pay rises from my employer.

I have read online that I can claim a rebate from hmrc and I will receive a refund which will be sent to myself but I have also read that my tax code will change depending on how much I pay into my pension over the £50,270 threshold.

As I will be paying varying amounts over the years I think I would get very confused about the tax codes and would'nt really know where I stand with the varying tax codes. 

If possible could you explain how this would work please?

Also would I be able to have the option to do my tax return after each tax year in April and receive a lump sum every year depending on what amount I've earned in the that year instead of my tax code having to be changed every year.

I hope that makes sense.

Thank you

Why not make life simple (to start with) and just tell HMRC once the tax year has ended?

That way any higher rate relief (which is not as simple as a "further 20%", it depends on your overall tax position) comes direct to you.

samps1973

Thanks @Dazed_and_C0nfused

To be honest I'd like to do that every year as it's easier to track. Fill out a tax return and get s rebate but not sure if I can.

In one of the posts above that @Albermarle wrote. I think your first tax return will be a rebate and then they change your tax code. The headache for me is because I'll be on a varied amount each year my tax code will be all over the place and I'd never know if I owe or am owed tax.

I wonder if your allowed to just do a return each year and get a rebate but keep the standard 1257L tax code 🤔