Contribute to pension to reduce tax

Printer

Hi
i'm now a high rate tax payer. Can someone help me out with how much pension contribution i can make to reduce my tax rate back to 20%.

Is there an online calculator online? I've had a look but cant see one.

Cobbler_tone

If you pay via salary sacrifice it is very easy to make one. You just need your salary, any taxable benefits and anything else taken via salary sacrifice.
In the example below you would achieve avoiding 40% at a 30% contribution rate. You need to consider any other potential income streams, bonuses etc.

vacheron

In a nutshell (assuming your receive the standard annual allowance of £12,570) you will need to earn less than £50,270 in the 2024-25 tax year.

If you are on track to earn more than this, you will need to calculate the amount you think you will earn (gross) to the end of the tax year and subtract £50,270, this is the amount you would need to disappear into your pension over the remaining 4 or 5 months of this tax year.

If you are an employee, sometimes you can just tell your pension people to keep you under the 40% tax threshold until you say otherwise, and they will work it all out for you.

Also, depending on your type of pension, you may also be able to claim back any higher rate tax relief paid on pension contributions in the first half of the year. 

Marcon

Higher rate tax kicks in on income of more than £50,270, so you need to make personal contributions (or sacrifice salary, as appropriate) which will reduce your income (from all potentially taxable sources if you have savings interest, dividend income etc to consider) to no more than this figure.

The extra 20% tax relief on personal contributions is claimed via your self assessment tax return, or direct from HMRC.

If your contributions are made by salary sacrifice, there's no need to claim for the 'extra' 20% relief - you've never actually received the money as 'earnings' so haven't paid any tax (or NI) on it.