Adding to Private Pension in last year of work...

DE_612183

Ok, so I'm hoping someone can comment on my thinking.

I'm going to finish work at the end of March 2025.

My current salary id £50,000

If I pay £10,000 into a Private Pension I get tax relief added on on £2500, before that date - if after April 2025 I take a 25% out - a quarter of the £2500 I get tax free, thereby giving me £625 free money.

Is that right?

AlanP_2

A basic rate taxpayer will get a "quick" 6.25% boost by putting money into and then pulling it all out from a pension at basic rate so yes your numbers are correct.

20% relief on way in (so increases your net contribution by 25%).

25% TFLS on withdrawal and the remaining 75% taxed at 20% (assuming you are still in BR territory).

Gives an effective 15% tax rate on withdrawals.

Whether you will get the tax relief in to your pension account before the end of March depends on when you contribute and the policies of your provider. Some prefund and credit the 25% straightway but most DIY platforms take 6-8 weeks until they get the money from HMRC.

Albermarle

Whether you pay tax on the 75% will depend on your total taxable income that tax year. If you stop work in March 2025 and have no other income in tax year 25/26, then you could withdraw the £7500 tax free as well. 

DE_612183

Albermarle said:

Whether you pay tax on the 75% will depend on your total taxable income that tax year. If you stop work in March 2025 and have no other income in tax year 25/26, then you could withdraw the £7500 tax free as well. 

Thanks - I'll have about £10k income for 25/26 - so I guess an extra £2700 will be tax free 

Albermarle

DE_612183 said:

Albermarle said:

Whether you pay tax on the 75% will depend on your total taxable income that tax year. If you stop work in March 2025 and have no other income in tax year 25/26, then you could withdraw the £7500 tax free as well. 

Thanks - I'll have about £10k income for 25/26 - so I guess an extra £2700 will be tax free 

Yes something like that.
Probably you will pay more tax on the £7500 in the first place, probably quite a lot more if you take it out all as one lump sum. However you will get any excess tax back at some point.