Best Pension for Sole Trader earning 60-80K per year.

N1_EP

@Dazedandconfused I checked and the lady my accountant has recommended is an Independent Financial Advisor. Sorry used the wrong terminology before, I suppose it just shows how little I know about all of this stuff.

So would an independent financial advisor who specialises in pensions be a good idea for me?

N1_EP

@Dazed_and_C0nfused thanks you so much for those figures. I am still not quite able to grasp the tax situation factoring in pension contributions. probably because I have never made any before!

I know tax year '24 - '25 I will invoice for around £100,000 of work. (This is very high for me! It is normally lower) My expenses will likely be around £15k so that means £85k profit.

If I put £48k into pension (this is my max I can put in for this tax year as I understand it now?). Then most of this I will have paid 40% tax on so I get 20% back or something like that. Gosh it is so confusing!  Sorry if i'm being thick i just really can't get my head around it. 

Thanks again for everyone's help!

QrizB

N1_EP said:

I know tax year '24 - '25 I will invoice for around £100,000 of work. (This is very high for me! It is normally lower) My expenses will likely be around £15k so that means £85k profit.
If I put £48k into pension (this is my max I can put in for this tax year as I understand it now?). Then most of this I will have paid 40% tax on so I get 20% back or something like that.

If you pay £48k into a Relief At Source pension it'll gain £12k of tax relief, becoming £60k.

You'll record that £60k gross payment on your tax return. This will increase your basic rate income tax band by £60k, so your higher rate threshold moves from ~£50k to ~£110k.

This in turn means that rather than paying 40% tax on ~£35k of your profit (£14k), you'll only pay 20% (£7k). So you'll pay £7k less income tax.

Your accountant will know this much. What they won't know is where you should invest that £60k of pension; that's where the IFA comes into it.

N1_EP

@QrizB THANK YOU! 

I finally understand! Wow that really is a big tax savings isn't it. 

Albermarle

N1_EP said:

@QrizB THANK YOU! 

I finally understand! Wow that really is a big tax savings isn't it. 

It is a big tax saving, but remember it is highly likely you will pay some tax when you withdraw it. The exact amount will depend on your circumstances. However it will be a lot less than the tax gain you are making now, so you will still be quids in !

MeteredOut

N1_EP said:

@Dazed_and_C0nfused thanks you so much for those figures. I am still not quite able to grasp the tax situation factoring in pension contributions. probably because I have never made any before!

I know tax year '24 - '25 I will invoice for around £100,000 of work. (This is very high for me! It is normally lower) My expenses will likely be around £15k so that means £85k profit.

If I put £48k into pension (this is my max I can put in for this tax year as I understand it now?). Then most of this I will have paid 40% tax on so I get 20% back or something like that. Gosh it is so confusing!  Sorry if i'm being thick i just really can't get my head around it. 

Thanks again for everyone's help!

Your other questions  have been answered by others, but at the risk of making it more complicated, assuming your Nest pension was active last tax year (Apr 2023 - Apr 2024) and you did not put the full £60K annual allowance into it in that tax year (which I think we know you did not), then you can "carry forward" any remaining allowance and top up your pension in this tax year to your gross £85K profit.

So, net, you could put in £68K into your pension this tax year, and it will be topped up to £85K. And then put in another £60K (assuming your profit allows it) next tax year.

You might still want to get these checked by your accountant and the IFA recommended to you though.