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Extra pension payments half way through the year to save paying 40% tax

ranger210
Posts: 8 Forumite



Hi everyone, I am after a little bit of advice if anyone on here can help. I finally finished paying my mortgage off last week and am now looking to up my pension payments, currently I pay 5% and my employer pays 12%. I have done my income tax calculations this year and it looks like I will be paying £1774 in the 40% tax bracket, I know that upping my contributions to approx 15% will bring the 40% tax to zero next year but my question is being that we are now half way through this year is there anyway for me to make sure I don't any 40% tax this year or have I left it too late :-) Thanks for any help.
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Comments
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Plenty of time. Making the contributions in the current tax year is what counts.
What method does your company use?
As you say "I pay" it presumably isn't salary sacrifice.
The other options are,
Relief at source (the pension company adds 25% to your contribution)
Net pay (no tax relief is added but your contribution reduces your income for tax purposes so you avoid paying some tax in the first place)
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Exactly what I do (via salary sacrifice) and they will reconcile at the end of the tax year. My bonus is paid in March so difficult to project exactly under the 40% band.
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Thanks both, that makes sense now :-)0
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ranger210 said:Thanks both, that makes sense now :-)
However there are advantages to having separate pension pots closer to retirement, in case you want to work part time or retire early without starting your main pension into payment. Plenty of time to look into that for next year or some future one.Fashion on the Ration
2024 - 43/66 coupons used, carry forward 23
2025 - 60.5/890 -
ranger210 said:Thanks both, that makes sense now :-)
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Do you have children that you could receive child benefit for? pension contributions reduce your salary and allow you to receive child benefit .1
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MX5huggy said:Do you have children that you could receive child benefit for? pension contributions reduce your salary and allow you to receive child benefit .
I have done my income tax calculations this year and it looks like I will be paying £1774 in the 40% tax bracket1 -
I do this and am lucky enough to have an employer that allows me to adjust the % paid into my pension via salary sacrifice every month.
If you have this flexibility then it's worth knowing that there are some NI-saving benefits in making larger and fewer contributions - because NI is calculated on each payslip, not annually like income tax.1 -
Thanks everyone, I was about to change my contribution from 5% to 19% for next months pay. (from £189.66 to £455.19)
My total salary this year is £45,500 + £8770 Bonus, tax code 857L
Can someone please help me with the numbers I have so far please to check my understanding -
Total tax paid so far this year - £6864.86 (bonus of £8770 was paid in July, no extra to pension over normal monthly amount was paid))
Total NI paid so far this year - £1592.92
Total deductions this year so far - £8457.78
I have plugged the following into the HMRC take home pay calculator to get my yearly totals -
If I don't make any changes - income tax at 20% £7540, Income tax at 40% 2060.04 NI £3086.04 (total deductions £12,686.89)
If I change pension contribution to 19% - income tax at 20% - £6957.26 NI - £3086.04 (total deductions £10,043.30)
It seems to me that if I change my pension contribution now to start from next pay packet I should only pay £1585.52 in tax and NI for the rest of the year?
I am not sure if the above is correct as it is 8 months through the year already and I have only paid £1706.94 so far this year to my pension, what I think I need to do is increase my monthly contributions to make sure I hit £7000 pension contribution by year end to make full use of the tax benefits and avoid the 40% tax.
Any help is gratefully received, I am thinking that I need to increase my contributions for Jan, Feb and March to 47% of my salary (£1782.80) but am worried that I will not get the tax back like I think I should.
Just to add my pension is Salary sacrifice.
Many thanks
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ranger210 said:
Just to add my pension is Salary sacrifice.
If you salary sacrifice then your actual salary is lower. The number you need to plug into the HMRC a calculator is the total salary after the sacrifice. You will pay less tax each month going forward so by the end of the year any higher rate tax you paid will have been balanced out by lower tax months. So long as your total for the year is within the 20% band.
The complication is NI, because that’s paid on a monthly basis, unlike tax which is an annual figure. If the amount payable falls, you won’t get back any of earlier months’ contribution (until you retire!)
Fashion on the Ration
2024 - 43/66 coupons used, carry forward 23
2025 - 60.5/891
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