Adding to pension pot to avoid 40% tax

PaoBao

Cobbler_tone said:

I'd disregard your savings interest as separate to your tax bill from earnings, apart from the rate of course.

I use a simple sheet to track mine. The only 'issue' I have is a bonus payment in the last week of March, which I don't get visibility of until about a week before. If I don't want to pay 40% on most of that (if I bounce under the line) then I need to guess and increase the contribution rate in Jan/Feb or March itself.
This model is always within a couple of quid of my net pay.

This spreadsheet is great! did you do it yourself or do you know if there is something similar online? thanks

WindfallWendy

PaoBao said:

WindfallWendy said:

I'm at the tipping point, so if I earn £1000 over the threshold, then I only see £600. So I'd rather put the £1000 beyond the threshold into my pension where it becomes £1250 in my pension, instead of just £600 in my pocket.

This is a great way to look at it, however you are going to pay tax on those £1250 sooner or later, right? How can we calculate the final benefit so?

But I figure I'll be paying tax on it when it's my pension income and that isn't going to be anywhere near the 40% threshold, so it still avoids my tipping point pickle.

Cobbler_tone

PaoBao said:

Cobbler_tone said:

I'd disregard your savings interest as separate to your tax bill from earnings, apart from the rate of course.

I use a simple sheet to track mine. The only 'issue' I have is a bonus payment in the last week of March, which I don't get visibility of until about a week before. If I don't want to pay 40% on most of that (if I bounce under the line) then I need to guess and increase the contribution rate in Jan/Feb or March itself.
This model is always within a couple of quid of my net pay.

This spreadsheet is great! did you do it yourself or do you know if there is something similar online? thanks

Thank you. I did it myself…so it is just logic and basic maths. Always within a couple of quid of my net pay. As my bonus is paid at the end of March and no idea what it’ll be, I’ll have to guess in Feb/March if I want to avoid 40% tax. 

The only downside is I’ve not seen an increase in net pay for a few years, so just got to get there to fully enjoy the rewards.

bjorn_toby_wilde

WindfallWendy said:

PaoBao said:

WindfallWendy said:

I'm at the tipping point, so if I earn £1000 over the threshold, then I only see £600. So I'd rather put the £1000 beyond the threshold into my pension where it becomes £1250 in my pension, instead of just £600 in my pocket.

This is a great way to look at it, however you are going to pay tax on those £1250 sooner or later, right? How can we calculate the final benefit so?

But I figure I'll be paying tax on it when it's my pension income and that isn't going to be anywhere near the 40% threshold, so it still avoids my tipping point pickle.

Until your pot is big enough to hit the lump sum allowance you always gain as long as you draw at the same or lower rate that you contributed at. 25% of your withdrawal will be tax free.

jimjames

WindfallWendy said:

Subject to of course:
Tax exempt rental income £1000

Tax exempt savings interest £1000 (assuming I'm a 20%-er)

Can you explain the tax exempt rental income? Not heard of that exemption before

Dazed_and_C0nfused

jimjames said:

WindfallWendy said:

Subject to of course:
Tax exempt rental income £1000

Tax exempt savings interest £1000 (assuming I'm a 20%-er)

Can you explain the tax exempt rental income? Not heard of that exemption before

I'm guessing it's the Property Allowance, a genuine allowance for a change!

Similar to the Trading Allowance.

SarahB16

WindfallWendy said:

penners324 said:

Why desperate to avoid 40% tax?

In actuality it's 42%, NICs included 

I'm at the tipping point, so if I earn £1000 over the threshold, then I only see £600. So I'd rather put the £1000 beyond the threshold into my pension where it becomes £1250 in my pension, instead of just £600 in my pocket.

Somebody more knowledgeable than me will be able to comment on this but I don't think the £600 you refer to above becomes £1,250 in your pension straightaway.  

The £600 that you are no longer taking in your salary/bank account would instead I think become £1,000 in your pension assuming you are a higher rate tax payer.  

WindfallWendy

Dazed_and_C0nfused said:

jimjames said:

WindfallWendy said:

Subject to of course:
Tax exempt rental income £1000

Tax exempt savings interest £1000 (assuming I'm a 20%-er)

Can you explain the tax exempt rental income? Not heard of that exemption before

I'm guessing it's the Property Allowance, a genuine allowance for a change!

Similar to the Trading Allowance.

That's the one. I think you can either declare expenses to reduce the taxable income, or use £1000 exemption.