Higher Rate Tax Payer Pension Contributions Query

Burnsey97

Hi all,

I have just recently received a pay-rise which has made me a higher-rate tax (HRT) payer for the first time, and I am trying to work out what my additional pension contributions I need to make to avoid paying HRT on my new earnings.

My employer adds 10% to my pension, and I add 5%.

I now earn £51,490 gross with an additional, non-pensionable london weighting allowance (LWA) of £3,500 p/y paid monthly (£54,490 total)

Am I right that I need to account for my existing 5% contribution of £2,575.50 p/a in my calcuations. If so, this would that, mean with my LWA included, I am earning £52,415.50.

To avoid HRT, I have calculated I need to increase my pension contributions by £178.71 p/m, or £2,144.52 p/a  to get me to just below the magic £50,274 HRT band start point?

Is my maths correct, or am I not accounting for this properly? I thought it'd be easy but struggling with how to factor in the LWA. I'd ask family but I am the 1st to be a higher-rate tax payer.

TIA

Dazed_and_C0nfused

Burnsey97 said:

Hi all,

I have just recently received a pay-rise which has made me a higher-rate tax (HRT) payer for the first time, and I am trying to work out what my additional pension contributions I need to make to avoid paying HRT on my new earnings.

My employer adds 10% to my pension, and I add 5%.

I now earn £51,490 gross with an additional, non-pensionable london weighting allowance (LWA) of £3,500 p/y paid monthly (£54,490 total)

Am I right that I need to account for my existing 5% contribution of £2,575.50 p/a in my calcuations. If so, this would that, mean with my LWA included, I am earning £52,415.50.

To avoid HRT, I have calculated I need to increase my pension contributions by £178.71 p/m, or £2,144.52 p/a  to get me to just below the magic £50,274 HRT band start point?

Is my maths correct, or am I not accounting for this properly? I thought it'd be easy but struggling with how to factor in the LWA. I'd ask family but I am the 1st to be a higher-rate tax payer.

TIA

It all depends on the method used to get the money into your pension.

The three normal methods are,

Relief at source (you make a net payment and the pension company adds 25% to this, equivalent to basic rate relief on the gross contribution)

Net pay (you make the contribution but it is deducted before tax is calculated, for example salary £50k and 5% contribution means P60 pay will be £47.5k.  No pension tax relief is added to your contribution)

Salary sacrifice (you don't pay anything but agree a reduced salary in return for your employer paying more into the pension.  As these are employer contributions no pension tax relief is due)

Until you know the method used you cannot know the answer to your question.

What other taxable income do you have?

And where have you found £50,274 is relevant?

Burnsey97

Hi @Dazed_and_C0nfused - many thanks for your reply.

I have reviewed my pension leaflet and can confirm it is via salary sacrifice.

I don't have any other income from employment, but I do have about £15,000 in savings (3.5%-6% interest on these) and receive dividends (c.£10 per year) through about £800 worth of shares I bought a few years back.

£50,274 was a typo, I meant to write £50,271 based on the thresholds on gov.uk

Dazed_and_C0nfused

Burnsey97 said:

Hi @Dazed_and_C0nfused - many thanks for your reply.

I have reviewed my pension leaflet and can confirm it is via salary sacrifice.

I don't have any other income from employment, but I do have about £15,000 in savings (3.5%-6% interest on these) and receive dividends (c.£10 per year) through about £800 worth of shares I bought a few years back.

£50,274 was a typo, I meant to write £50,271 based on the thresholds on gov.uk

So that means you aren't contributing anything to the pension and there is nothing you can deduct when determining if you are a higher rate payer.

Based on what you have posted your taxable income is going to be at least £53k:(£52,415 from your job) so you will need to add at least £3k if you want to remain within the basic rate band.

But without knowing how much interest you will receive it's all very vague.  There is over £500 difference between £15k paying 3.5% and £15k paying 6%.