Cancel out Higher Rate Tax via Pension Contributions?

Adventure_Dad

Hello all,

I've joined up after following MSE for some time, in particular debt management and income tax!

I'm in the very fortunate position where over the past 24 months my income has jumped. This year I entered the Higher Rate Tax Band and due to a pay rise in April, will be pushed ever higher - admittedly a nice luxury to have.

A combination of salary, car allowance and acting up allowance will see me earn an estimated £61,000 in 24-25, under a tax code of 1435L.

As i understand it, i will pay 40% tax on approx £11,000 next year, assuming i paid 0% pension.

Is it as simple as moving this £11,000 into my pension (£917 a month) to mitigate the High rate Tax?

I actually pay a percentage pension, currently approx 8% pre tax so this is frying my simple mind somewhat!

Many thanks!

Mark_d

Yes I believe it is that simple.  However depending on your employment arrangements, you might have to claim tax back via self assessment

caprikid1

Yep I did it, then lost it in divorce

Dazed_and_C0nfused

Adventure_Dad said:

Hello all,

I've joined up after following MSE for some time, in particular debt management and income tax!

I'm in the very fortunate position where over the past 24 months my income has jumped. This year I entered the Higher Rate Tax Band and due to a pay rise in April, will be pushed ever higher - admittedly a nice luxury to have.

A combination of salary, car allowance and acting up allowance will see me earn an estimated £61,000 in 24-25, under a tax code of 1435L.

As i understand it, i will pay 40% tax on approx £11,000 next year, assuming i paid 0% pension.

Is it as simple as moving this £11,000 into my pension (£917 a month) to mitigate the High rate Tax?

I actually pay a percentage pension, currently approx 8% pre tax so this is frying my simple mind somewhat!

Many thanks!

You need to provide a breakdown of your tax code and also understand what method is going to be used to get money into your pension as the three main methods all work differently and you cannot get the correct answer without knowing that.

Relief at source (pension company adds 25%)
Net pay (reduces taxable income)
Salary sacrifice (reduces taxable and NIC'ble Income)

Adventure_Dad

Thank you - I should add my pension contributions are taken from my gross pay by my employer (Salary Sacrifice?)

Dazed_and_C0nfused

Adventure_Dad said:

Thank you - I should add my pension contributions are taken from my gross pay by my employer (Salary Sacrifice?)

Salary sacrifice means you don't pay anything to a pension, you agree to a lower salary in return for extra employer contributions.

This means your taxable earnings are less.

What do you think your P60 will show your taxable pay as for 2023-24?