Can you offer me some advice please. I’m looking into starting up a pension but need to be tax effic

Jamieward95

Hello looking at setting up a pension. Im sole trader/self employed. Will this help me avoid being in the higher tax bracket and where do I declare this deposit on my tax return. 

Would a money box pension be eligible? 

Another quick question can I possibly take advantage of this pension 

 Plus using the  isa deposit of up to 20k per tax year  allowing the interest being tax free ?

Albermarle

Plus using the  isa deposit of up to 20k per tax year  allowing the interest being tax free ?

ISA and pension are unconnected, so you can add £20K to an ISA whether you contribute to a pension or not.

As self employed you can contribute to a pension up to your profit for the year ( I think) .

The pension provider will add basic rate tax relief to your contribution. So if you add £4K then £1K will be automatically added. If you are a 40% taxpayer than you can declare this £5K on your tax return and you may get further tax relief depending on all the other details of your tax and income.

If you want to get tax relief in this tax year, you need to make a contribution pronto, as tax year ends on Friday.

xylophone

https://www.moneyboxapp.com/pension

is just a personal pension, one of many available.

https://www.money.co.uk/pensions/personal-pension-plans/pm-1?track=885118&inset-cookie-banner&utm_accountid=3115971200&utm_source=google&utm_medium=cpc&utm_term=personal pension&utm_cmpid=11661682012&utm_adgid=112076440023&utm_tgtid=kwd-27284611&utm_mt=p&utm_adid=494033438594&utm_dvc=c&utm_ntwk=g&utm_plcmnt=&utm_locphysid=9044976&utm_locintid=&utm_feeditemid=&utm_devicemdl=&utm_plcmnttgt=&gclid=EAIaIQobChMI69GJrPSjhQMVq5tQBh1KFgKhEAAYBCAAEgJUqfD_BwE


https://getpenfold.com/pension-guides/how-much-can-i-pay-into-my-pension

https://getpenfold.com/pension-guides/self-employed-pension-tax-relief

You may contribute up to a total of £20,000 to ISA (s) each tax year regardless of whether or not you contribute to a pension.

ISA interest is tax free.

Marcon

Jamieward95 said:

Hello looking at setting up a pension. Im sole trader/self employed. Will this help me avoid being in the higher tax bracket and where do I declare this deposit on my tax return. 

On the section headed 

Tax reliefs

Paying into registered pension schemes and overseas pension schemes

Jamieward95

Honestly thank you so much  for all your amazing advice it’s really helped me out a lot !!

55,788
Your total income

That was my total income from last year.  Meaning I was a higher tax payer last year I want to avoid this 

So if I’m correct I go with money box pension and they will contribute up to 20%  of what I’ve put in, 

So this year I’ll have an income of roughly   70k minus the 15k/20k expenses/wages for my apprentice. 

This leaves me with around 50k take home, 

If I invest 10k into a pension. The government would bump it up to 12k 

And I get to claim the 10k via  Tax reliefs

Paying into registered pension schemes and overseas pension schemes On my self assessment.

Would I get any deductions  once i file this on my self return ? 

Dazed_and_C0nfused

Jamieward95 said:

Honestly thank you so much  for all your amazing advice it’s really helped me out a lot !!

55,788
Your total income

That was my total income from last year.  Meaning I was a higher tax payer last year I want to avoid this 

So if I’m correct I go with money box pension and they will contribute up to 20%  of what I’ve put in, 

So this year I’ll have an income of roughly   70k minus the 15k/20k expenses/wages for my apprentice. 

This leaves me with around 50k take home, 

If I invest 10k into a pension. The government would bump it up to 12k 

And I get to claim the 10k via  Tax reliefs

Paying into registered pension schemes and overseas pension schemes On my self assessment.

Would I get any deductions  once i file this on my self return ? 

Not quite no.

You cannot change history so if you were a higher rate payer in 2022-23 (the last tax year) then there is nothing you can do pension wise to change that now.

And if your only taxable income in the current tax year (2023-24) is £50k you won't be a higher rate payer so there will be no personal tax savings from contributing to a pension.

The good news is that the pension company adds 25% to your contribution so £10k from you becomes £12.5k in the pension (20% of £12.5k is £2.5k).

Jamieward95

Amazing thank you so much, would it lower my income as well  because the hmrc has already got 20% of all my earning this year? 

So when I declared the 10k deposit into a pension allow any rebate. In my self assessment when I file it for this year. 



 Or would it just be topped up via the pension fund ?  Without any advantage on my self assessment 

Would I have to be a ltd company to make it income deductible? 

Thank you for all your amazing advice 

Dazed_and_C0nfused

Jamieward95 said:

Amazing thank you so much, would it lower my income as well  because the hmrc has already got 20% of all my earning this year? 

So when I declared the 10k deposit into a pension allow any rebate. In my self assessment when I file it for this year. 

 Or would it just be topped up via the pension fund ?  Without any advantage on my self assessment 

Would I have to be a ltd company to make it income deductible? 

Thank you for all your amazing advice 

No, a contribution you make to a SIPP or personal pension will not reduce your taxable income.

You would get the basic rate tax relief the pension company adds (courtesy of HMRC).  That is automatic, you aren't involved (apart from paying the £10k in the first place).

It also increases your basic rate band so if you contributed £12.5k gross your basic rate band would go from £37,700 to £50,200.

But you need to be liable to some higher rate tax to get any personal tax saving.  If your only taxable income is £50k then you won't be liable to any higher rate tax and there won't be any tax saving.

You have to declare the pension contribution on your tax return but it won't change your tax liability (on income of £50k).

Things work differently with a limited company but you would be best getting proper (paid for) advice if you are considering that.

But that is never going to have any bearing now for the current tax year.

Marcon

Jamieward95 said:

Amazing thank you so much, would it lower my income as well  because the hmrc has already got 20% of all my earning this year? 

So when I declared the 10k deposit into a pension allow any rebate. In my self assessment when I file it for this year. 



 Or would it just be topped up via the pension fund ?  Without any advantage on my self assessment 

Would I have to be a ltd company to make it income deductible? 

Thank you for all your amazing advice 

If you have a limited company and the company makes the pension contribution, rather than paying you as salary/dividends, then your income would be reduced because you are receiving less salary/dividends. There is no NI payable on pension contributions made this way (either employer or employee), and the company can treat it as. trading expense and get corporation tax relief.

For clarity, employer contributions are paid gross to the pension provider.

Beddie

Jamieward95 said:

Amazing thank you so much, would it lower my income as well  because the hmrc has already got 20% of all my earning this year? 

So when I declared the 10k deposit into a pension allow any rebate. In my self assessment when I file it for this year. 



 Or would it just be topped up via the pension fund ?  Without any advantage on my self assessment 

Would I have to be a ltd company to make it income deductible? 

Thank you for all your amazing advice 

Do you have an accountant? They would be an ideal person to discuss all of this with and to increase your knowledge. And if you don't have one, perhaps you should!