Impact of pension contributions to adjusted net income

tunes
tunes Posts: 5
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Hello,

To my surprise HMRC could not give me a definitive answer on this on the phone…

My income will be £108k. I am trying to bring down my adjusted net income to £100k. My employee pension contributions are £1.7k

When I logon to my pension account I can see this £1.7k plus another 25% added by HMRC.

My question is, how much more pension I need to contribute privately to bring my income down to £100k?

Is it £8k or £6.4k as pension provider will add a further 25% relief?

Thank you very much.

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  • QrizB
    QrizB Posts: 13,627
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    Are you making Relief At Source contributions to eg. a SIPP? If so, it will be £6.4k.
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  • tunes
    tunes Posts: 5
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    QrizB said:
    Are you making Relief At Source contributions to eg. a SIPP? If so, it will be £6.4k.
    Yes - if I put £1, I can see it as £1.25 on my pension account. It is the same for my employee contributions. Does this mean I can take off x1.25 for them too? Thank you very much.
  • Jeremy535897
    Jeremy535897 Posts: 10,371
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    If your employee contributions have already come off your pay before it is taxed, then no.

    There is no point in asking HMRC to advise you on how to reduce your tax bill. That is not their job.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,706
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    edited 3 February at 12:23AM
    tunes said:
    Hello,

    To my surprise HMRC could not give me a definitive answer on this on the phone…

    My income will be £108k. I am trying to bring down my adjusted net income to £100k. My employee pension contributions are £1.7k

    When I logon to my pension account I can see this £1.7k plus another 25% added by HMRC.

    My question is, how much more pension I need to contribute privately to bring my income down to £100k?

    Is it £8k or £6.4k as pension provider will add a further 25% relief?

    Thank you very much.
    You wouldn't need to contribute either of those amounts to achieve your aim.

    Assuming £108k is the total of all your taxable income then you have already reduced your adjusted net income to £105,875 so you would need to pay a further £4,700.

    This would have basic rate relief of £1,175 added by the pension company (courtesy of HMRC) making an additional gross contribution of £5,875.

    Don't forget though that you need to include all taxable income in your adjusted net income calculation, for example interest and dividends, even if it is taxed at 0%.  

    And finally, these RAS contributions only reduce your adjusted net income, they do not reduce your taxable income.  
  • tunes
    tunes Posts: 5
    First Post First Anniversary Combo Breaker
    Forumite
    tunes said:
    Hello,

    To my surprise HMRC could not give me a definitive answer on this on the phone…

    My income will be £108k. I am trying to bring down my adjusted net income to £100k. My employee pension contributions are £1.7k

    When I logon to my pension account I can see this £1.7k plus another 25% added by HMRC.

    My question is, how much more pension I need to contribute privately to bring my income down to £100k?

    Is it £8k or £6.4k as pension provider will add a further 25% relief?

    Thank you very much.
    You wouldn't need to contribute either of those amounts to achieve your aim.

    Assuming £108k is the total of all your taxable income then you have already reduced your adjusted net income to £105,875 so you would need to pay a further £4,700.

    This would have basic rate relief of £1,175 added by the pension company (courtesy of HMRC) making an additional gross contribution of £5,875.

    Don't forget though that you need to include all taxable income in your adjusted net income calculation, for example interest and dividends, even if it is taxed at 0%.  

    And finally, these RAS contributions only reduce your adjusted net income, they do not reduce your taxable income.  
    Thank you very much! Yes I am mainly concerned about net ANI due to 100k childcare eligibility criteria. I suppose higher tax relief does not come into the picture to reduce ANI even further does it? It is just the basic rate relief?
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,706
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    tunes said:
    tunes said:
    Hello,

    To my surprise HMRC could not give me a definitive answer on this on the phone…

    My income will be £108k. I am trying to bring down my adjusted net income to £100k. My employee pension contributions are £1.7k

    When I logon to my pension account I can see this £1.7k plus another 25% added by HMRC.

    My question is, how much more pension I need to contribute privately to bring my income down to £100k?

    Is it £8k or £6.4k as pension provider will add a further 25% relief?

    Thank you very much.
    You wouldn't need to contribute either of those amounts to achieve your aim.

    Assuming £108k is the total of all your taxable income then you have already reduced your adjusted net income to £105,875 so you would need to pay a further £4,700.

    This would have basic rate relief of £1,175 added by the pension company (courtesy of HMRC) making an additional gross contribution of £5,875.

    Don't forget though that you need to include all taxable income in your adjusted net income calculation, for example interest and dividends, even if it is taxed at 0%.  

    And finally, these RAS contributions only reduce your adjusted net income, they do not reduce your taxable income.  
    Thank you very much! Yes I am mainly concerned about net ANI due to 100k childcare eligibility criteria. I suppose higher tax relief does not come into the picture to reduce ANI even further does it? It is just the basic rate relief?
    No, it doesn't impact ANI.

    The higher rate relief is given by the gross contribution increasing your basic rate band.

    Meaning more income is taxed at 20% and less at 40% but that doesn't change your ANI.
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