Personal Savings Allowance - Pension Contributions & Starting rate for savings

Puzzled_Guy_439

Hi everyone,

I'm looking for some advice regarding personal savings allowance and pensions. My spouse and I are expecting to come into a significant sum of money within the next 12 months and were concerned about going over the personal savings allowance.

We've been considering reducing our taxable income by increasing our pension contributions to ensure we stay within the limits. From my understanding, if our total income excluding savings interest is below £17,570 we could benefit from the starting rate for savings.

Am I right in thinking that if I increase my pension contributions enough to lower my salary below £17,570 threshold I would qualify for the starting rate for savings?

One thing I'm unsure about is my spouse's pension contributions. They pay into NEST which isn't relief at source, so the payslip shows their gross earnings without the pension tax relief applied. Would this impact how the starting rate savings are calculated?

Any advice or insights would be really helpful – thank you.

Puzzled_Guy_439

After thought - I am presuming the total income of £17,570 includes the interest we are getting on our savings, but does this include things like ISA interest & Premium Bonds - as these are tax free!

Dazed_and_C0nfused

The first thing you need to understand is that only two of the three common methods of getting money into a pension reduce your taxable income.

So which method is being used by each person?

Relief at source (where the pension company adds 25% to the net contribution)
Net pay
Salary sacrifice (actually employer contributions)

Dazed_and_C0nfused

Puzzled_Guy_439 said:

After thought - I am presuming the total income of £17,570 includes the interest we are getting on our savings, but does this include things like ISA interest & Premium Bonds - as these are tax free!

Non taxable income is never a factor for income tax.  If it was if wouldn't be non taxable!

Puzzled_Guy_439

Dazed_and_C0nfused said:

The first thing you need to understand is that only two of the three common methods of getting money into a pension reduce your taxable income.

So which method is being used by each person?

Relief at source (where the pension company adds 25% to the net contribution)
Net pay
Salary sacrifice (actually employer contributions)

Mine will be a salary sacrifice from April, my husband's is a Net Pay arrangement. 

Dazed_and_C0nfused

Puzzled_Guy_439 said:

Dazed_and_C0nfused said:

The first thing you need to understand is that only two of the three common methods of getting money into a pension reduce your taxable income.

So which method is being used by each person?

Relief at source (where the pension company adds 25% to the net contribution)
Net pay
Salary sacrifice (actually employer contributions)

Mine will be a salary sacrifice from April, my husband's is a Net Pay arrangement. 

Both of those reduce taxable income.

With net pay that is why you don't get any pension tax relief.  You avoid paying tax on the net pay contribution.  So salary £20k and 10% net pay contribution means taxable earnings of £18k (the figure that would be on your P60).

Salary sacrifice means you aren't contributing anything to the pension, so again no pension tax relief is due.  But you avoid paying both tax and NI on the amount sacrificed.

Unless you are part time though I'm not sure how salary sacrifice will help with this given the NMW constraints.

Also, you have misunderstood something regarding Nest. 

One thing I'm unsure about is my spouse's pension contributions. They pay into NEST which isn't relief at source, 

According to Nest's website it definitely is a relief at source scheme.  And relief at source contributions do not reduce taxable income.

https://www.nestpensions.org.uk/schemeweb/nest/about-pensions/tax-relief-benefits.html