Savings interest used by HMRC to push me into 40% bracket

WindfallWendy

Oh, sorry. I thought it was broadly in the same ballpark as this discussion, in that I think I'm teetering around the 40% bracket and am trying to avoid it.

zagfles

WindfallWendy said:

Ooo, please please please can I try and tap into this to understand my own position as I keep confusing myself on when/where the 40% threshold is.

So for 24/25 so far....
I've been on a £48k salary (gross), but for Jan-March2025 I'll be on £55k (gross)
I received £3,800 from rental income (house now sold, no more rental income)
Interest from savings is currently at £1500 (and going up, likely to be close to £2k by the end of 24/25)

So, £54-56k pre tax income.

Tax owed therefore breaks down into
Tax free bit: £12,570
20% charged on 12,571 - 50,270
And then I'll be charged 40% on the rest?

However, I've made a £5k additional payment into my pension (via my employer), and will make another £3k payment into my new workplace pension in March 2025. Which I think therefore reduces my taxable income by £8k. I.e. my income for 24/25 goes down from £54-56k to £46-48k. And actually I think there is another £1000 allowance for rental income isn't there, so that reduces again a little bit (£45-£47k). And then I guess £1000 allowance for savings interest too.

And therefore I think I'm still only in the 20% band.

Does this make sense? Am I correct in thinking adding to my pension reduces my tax liability/taxable income?

The PSA doesn't reduce your taxable income, it makes no difference to the tax bands. As discussed earlier. 

Pension contributions will BUT the March one could be an issue depending how it's taken. If it's a RAS scheme where the pension provider claims the tax relief and it's deducted from your pay after tax, but your employer doesn't pay it in till the new tax year, then it'd be counted in the new tax year, it won't reduce your income this tax year. (in fact it technically doesn't reduce your income anyway, it increases the BR band). 

However if the pension cont is salary sacrifice or "net pay" (this confusingly means deducted from gross pay before tax), then you'll be OK, it'll reduce taxable income this tax year. 

Dazed_and_C0nfused

WindfallWendy said:

Oh, sorry. I thought it was broadly in the same ballpark as this discussion, in that I think I'm teetering around the 40% bracket and am trying to avoid it.

You are making things more complicated than they need to be.

However, I've made a £5k additional payment into my pension (via my employer), and will make another £3k payment into my new workplace pension in March 2025. Which I think therefore reduces my taxable income by £8k. I.e. my income for 24/25 goes down from £54-56k to £46-48k. And actually I think there is another £1000 allowance for rental income isn't there, so that reduces again a little bit (£45-£47k). And then I guess £1000 allowance for savings interest too.

What method was used to make the £5k pension contribution?  Net pay or relief at source?  Will the same method be used for the £3k?

What is your expected rental income profit?

There is no "allowance" for savings.  What do you expect your taxable interest to be for 2024-25?

Do you have may other taxable income, dividends, company benefits, pension income etc?