Reach 40% threshold with last monthly pay?

MikMikandThriceMik

Grumpy_chap said:

MikMikandThriceMik said:

If I reach the threshold to be taxed at 40% with my last monthly salary this year, what happens in April? 

Even if your gross earnings trip into the higher rate band in the final month of the year, your total income might still be below once factors such as pension contributions are considered.

If you plan to retire very quickly, and assuming you have available allowance remaining, it may be worth making extra pension payments as you get the to-up on putting the money in and can then draw down with 25% tax free (subject to limits).  I assume you are of the age where drawing pension is permitted under standard rules.

Thank you.
Unfortunately I am not in a position to put anymore than what goes into pension monthly, but if I stay until April pay packet, at least that tiny amount by comparison to the overall pot also goes into pension.

I dearly hope my sheet is correct. The IFA I phoned didn't want to know about it or Look at it because it is so complicated. I think though, that other people who have to retire early and even have child maintenance commitments would benefit from that sheet I did, as long as the calculations are correct.
Although maybe because of charges subtracted from actual pension pot and interest added to pension pot, the State pension/Private Pension combination shows too many years in comparison to my pension providers drawdown calc(and their drawdown calc does include SP in the later years.
Even the moneysavingexpert team wouldn't look at the sheet as they get so many emails every day.
The other drawdown calculators on the internet don't seem to factor in retiring early, but adding state pension in later years of drawdown.

chrisbur

MikMikandThriceMik said:

Thank you.
Looking  at Gov website they say my tax code for next year will be 1257L also.
Hopefully it will be that although pension provider says my first pension income will be taxed at 40% until HMRC tell them the real tax code.

It's going to be a hell of a shock going to less than 40% of my salary 

Not sure why you think that you are "going to less than 40% of my salary"
Perhaps you do not understand PAYE.
It is designed to even out your wages as near as possible for the year so only your earnings over aprox. £4190 in month 12 will be taxed at 40%.
It does this by spreading the allowances out over the year so for example if your taxable pay to date in month ten was over aprox. £ 41893 then you paid some tax at 40%. In month 11 that rose to aprox. £46082 and then finally in month 12 to aprox. £ 50271
So even if your earnings were getting closer and closer to the 40% band so that they did not go over until month 12 you still get the tax free allowance of £1048 and the 20% band of £3142 before any tax is due at 40%.

Has your pension provider already had a tax code from HMRC for the 40% tax and is that payment due this tax year or next?

MikMikandThriceMik

chrisbur said:

MikMikandThriceMik said:

Thank you.
Looking  at Gov website they say my tax code for next year will be 1257L also.
Hopefully it will be that although pension provider says my first pension income will be taxed at 40% until HMRC tell them the real tax code.

It's going to be a hell of a shock going to less than 40% of my salary 

Not sure why you think that you are "going to less than 40% of my salary"
Perhaps you do not understand PAYE.
It is designed to even out your wages as near as possible for the year so only your earnings over aprox. £4190 in month 12 will be taxed at 40%.
It does this by spreading the allowances out over the year so for example if your taxable pay to date in month ten was over aprox. £ 41893 then you paid some tax at 40%. In month 11 that rose to aprox. £46082 and then finally in month 12 to aprox. £ 50271
So even if your earnings were getting closer and closer to the 40% band so that they did not go over until month 12 you still get the tax free allowance of £1048 and the 20% band of £3142 before any tax is due at 40%.

Has your pension provider already had a tax code from HMRC for the 40% tax and is that payment due this tax year or next?

Apologies for not being clear.
My pension is going to be less than 40% of my salary when I retire. Not any 2024 Pay packet.

Not retired yet so tax code for my DC pension still to be determined when I do retire.

Thank you.

Flugelhorn

MikMikandThriceMik said:

Apologies for not being clear.
My pension is going to be less than 40% of my salary when I retire. Not any 2024 Pay packet.

Not retired yet so tax code for my DC pension still to be determined when I do retire.

Thank you.

Most people end up on far less than their  final salary when they retire but curiously it doesn't always  feel as little as you think it might, greater proportion is tax free, far fewer work related expenses etc etc - live just seems less expensive somehow. Our household retirement income (gross) is the same as it was a few years ago when I was working flat out - but we seem to have far more money left at the end of the month than we used to 

MikMikandThriceMik

Flugelhorn said:

MikMikandThriceMik said:

Apologies for not being clear.
My pension is going to be less than 40% of my salary when I retire. Not any 2024 Pay packet.

Not retired yet so tax code for my DC pension still to be determined when I do retire.

Thank you.

Most people end up on far less than their  final salary when they retire but curiously it doesn't always  feel as little as you think it might, greater proportion is tax free, far fewer work related expenses etc etc - live just seems less expensive somehow. Our household retirement income (gross) is the same as it was a few years ago when I was working flat out - but we seem to have far more money left at the end of the month than we used to 

I am on my own. I don't have a partner that contributes to the household pot.
I have £500 left end of every month by my calculations. If I need a new used car in a couple years, that'll wipe a lot of that out, never mind the increases in every other bill.
There's so many Damocles swords hanging over my neck, soon I'm going to need a wider neck

penners324

40% tax on the pension will only apply in the same months as you're still getting a salary.

When you get your p45 send a copy to the pension scheme. They will update their records for YTD pay.

MikMikandThriceMik

penners324 said:

40% tax on the pension will only apply in the same months as you're still getting a salary.

When you get your p45 send a copy to the pension scheme. They will update their records for YTD pay.

Thank you.