New HICBC threshold and property finance.

kevj9201

Hi, I’m a bit unsure on how much I will need to pension next year with the change in hicbc level.

for last couple of years my income has been roughly

Employed £45000
Self employed £5000
Property “profit” £10000 (of which £4000 is interest payments on mortgage)
total £60000

so I have been putting £10000 gross amount into private pension to keep me below 40% tax and having to pay hicbc ( 3 kids so approx another 25% tax)

I get the £6000 extra tax relief for my pension contributions on my paye tax code! 

When the level changes up to £60k next tax year will I still need to put the £10K gross amount in to avoid 40% tax or will £6K do it with the property finance relief?

Hope that makes sense to the tax gurus on here. 

Thanks

[Deleted User]

kevj9201 said:

Hi, I’m a bit unsure on how much I will need to pension next year with the change in hicbc level.

for last couple of years my income has been roughly

Employed £45000
Self employed £5000
Property “profit” £10000 (of which £4000 is interest payments on mortgage)
total £60000

so I have been putting £10000 gross amount into private pension to keep me below 40% tax and having to pay hicbc ( 3 kids so approx another 25% tax)

I get the £6000 extra tax relief for my pension contributions on my paye tax code! 

When the level changes up to £60k next tax year will I still need to put the £10K gross amount in to avoid 40% tax or will £6K do it with the property finance relief?

Hope that makes sense to the tax gurus on here. 

Thanks

You will still need to put 10000 into your personal pension (actually 9730 but there we go). 

Your income for tax purposes is 60000 which is not reduced by the finance costs as relief is given as a tax credit. 

On the tax front nothing has changed for you!

kevj9201

Thanks for that, I guessed that might be the case! How would the £4000 mortgage interest be taxed if i only paid £6000 gross into pension 20% or 40%?

Or simply how much more tax would I pay if I only put £6000 gross into pension as apposed to the £10000! 

Thanks

Dazed_and_C0nfused

kevj9201 said:

Thanks for that, I guessed that might be the case! How would the £4000 mortgage interest be taxed if i only paid £6000 gross into pension 20% or 40%?

Or simply how much more tax would I pay if I only put £6000 gross into pension as apposed to the £10000! 

Thanks

Mortgage interest isn't "taxed".

It's a tax reducer so it has no impact on the profit (or loss) on rental income.

If it qualifies for relief then a credit, which is fixed at 20% of the allowable finance costs, is given against your income tax liability.

A reduction in pension contributions could result in more income being taxed at 40% and your adjusted net income being more.  So more HICBC is due.