Reducing my tax - pension

Gazelle1985

Can anyone help with my tax question please - I'm so confused!

I earn £62k per year and last year I also earnt about £6k in taxable savings interest last year. This year will be similar. ISAs and Premium Bonds are maxed out. I'm saving towards a house. 

I'm putting 13% into my pension, and my employer puts in 3%. My employer doesn't currently offer a salary sacrifice scheme.

I've worked out that if I up my pension contribution to 19% it would lower my taxable income to £49,888.61, so under the higher rate taxpayer threshold. However, would my employer have to have a salary sacrifice scheme? And does my savings interest count towards my total income?

Mark_d

Salary sacrifice schemes saved you NI but salary sacrifice is not needed to increase your pension contributions.  Your savings interest, save for the savings allowance, is added to tour total income to determine the marginal tax rate.  So with 19% pension contributions you will still be paying considerable tax on savings interest.  I would increase pension contributions to at least 25% if I were you.

Gazelle1985

Thanks so much, that makes sense.

Albermarle

Even without a salary sacrifice scheme, your employer still has two alternative ways of taking your pension contributions.
The confusingly named 'Net Pay method'. This means that your contributions are taken from your gross/pre tax salary.
In this case you automatically get all the 40% tax relief as you never paid tax on the contributions in the first place.
The other way is called 'Relief at Source' - here contributions are taken from your after tax income. The pension provider then adds basic rate tax relief at 25% to your contribution, then you need to inform HMRC about your gross pension contribution ( including the tax relief ), and they then will rebate any higher rate tax relief you are due.

Gazelle1985

Albermarle said:

Even without a salary sacrifice scheme, your employer still has two alternative ways of taking your pension contributions.
The confusingly named 'Net Pay method'. This means that your contributions are taken from your gross/pre tax salary.
In this case you automatically get all the 40% tax relief as you never paid tax on the contributions in the first place.
The other way is called 'Relief at Source' - here contributions are taken from your after tax income. The pension provider then adds basic rate tax relief at 25% to your contribution, then you need to inform HMRC about your gross pension contribution ( including the tax relief ), and they then will rebate any higher rate tax relief you are due.

My pension is definitely taken from my gross salary so all good there I think.

SacredStephan

Mark_d said:

Your savings interest, save for the savings allowance, is added to tour total income to determine the marginal tax rate.

Surely all your savings interest is added to your total income to determine the marginal tax rate.

Dazed_and_C0nfused

SacredStephan said:

Mark_d said:

Your savings interest, save for the savings allowance, is added to tour total income to determine the marginal tax rate.

Surely all your savings interest is added to your total income to determine the marginal tax rate.

It is.  Then once that has been established the first £500 or £1,000 interest is taxed at 0%.

Or £0 if you are a very higher earner.

MetaPhysical

Be aware even if you pay no tax on your interest (because it is within your savings allowance) it will still get added to your income for NAI calculations.  This has tipped a couple of colleagues over the 100k threshold by a minute amount - literally £20 or so - and they lost thousands of pounds of free childcare.  Be very away of this.  Get your cash into ISA's if possible and/or make more pension contributions to get your NAI down below 100k.