Interaction of earnings, MPAA & PSA

Time4T_Accounts

Hi everyone,

I’m in receipt of a state pension which is just below my personal allowance, and have already crystallised my personal pension (though won’t be drawing down anything this year).  I expect to be in receipt of around £5k interest this tax year.  I will also have several £k self-employed earnings.  If I use the MPAA to make pension payments equal to my self-employed earnings, does this then have the effect of bringing my taxable income back down to the personal allowance so that i can take advantage of up to £5k interest being tax free?

Any guidance would be much appreciated.

With thanks

Dazed_and_C0nfused

Time4T_Accounts said:

Hi everyone,

I’m in receipt of a state pension which is just below my personal allowance, and have already crystallised my personal pension (though won’t be drawing down anything this year).  I expect to be in receipt of around £5k interest this tax year.  I will also have several £k self-employed earnings.  If I use the MPAA to make pension payments equal to my self-employed earnings, does this then have the effect of bringing my taxable income back down to the personal allowance so that i can take advantage of up to £5k interest being tax free?

Any guidance would be much appreciated.

With thanks

No, pension contributions will have no impact whatsoever on your taxable income.

But you will have basic rate tax relief added to your contributions.  So say your profit is £3,800 you can pay £3,040 and the pension company will add 25%, making a gross contribution of £3,800.

Why do you think MPAA is relevant to you?  It might be but nothing in your post specifically confirms that.

Albermarle

The MPAA of £10K only applies where you have taken some taxable income from the crystallised part of your pension.
Taking the tax free cash does not trigger it.

Time4T_Accounts

Thanks.  Yes, I took taxable income in previous years - it’s just this year that I (unexpectedly) have some consultancy income.