Tax Dilemma

cyberlife

Hi Everyone

New to posting on the forum but been lurking for a while trying to understand my best option for the situation I'm in.

For the 24/25 financial year I find myself in a fortunate situation whereby I will earn approximately £134000 from my job, which I believe will wipe out my personal allowance.

I'm already fully utilising my ISA allowance for the year and I pay into my employers pension scheme. I also have a personal pension held elsewhere which is a combination of previous workplace pensions, but I don't pay anything further in to that.

What I'm trying to do is save my personal allowance whilst also avoiding the 60% trap and I thought that, by paying an amount into my existing personal pension or a new SIPP, that I could reduce my effective salary down to £100k.

Is this the best option, given where we are in the tax year and if so is it actually £34000 that I'd need to contribute?

Many thanks in advance

Nomunnofun1

cyberlife said:

Hi Everyone

New to posting on the forum but been lurking for a while trying to understand my best option for the situation I'm in.

For the 24/25 financial year I find myself in a fortunate situation whereby I will earn approximately £134000 from my job, which I believe will wipe out my personal allowance.

I'm already fully utilising my ISA allowance for the year and I pay into my employers pension scheme. I also have a personal pension held elsewhere which is a combination of previous workplace pensions, but I don't pay anything further in to that.

What I'm trying to do is save my personal allowance whilst also avoiding the 60% trap and I thought that, by paying an amount into my existing personal pension or a new SIPP, that I could reduce my effective salary down to £100k.

Is this the best option, given where we are in the tax year and if so is it actually £34000 that I'd need to contribute?

Many thanks in advance

No. Assuming £134000 is your P60 figure you would need to contribute £27200. This will be grossed up to £34000. 

You would need to inform HMRC that you have made a gross contribution of £34000 in order to

a) preserve your personal allowance
b) obtain the additional tax relief. 

DRS1

And watch out for any other taxable income you may have for this tax year

cyberlife

Thanks for the input, very much appreciated

Dazed_and_C0nfused

DRS1 said:

And watch out for any other taxable income you may have for this tax year

This is crucial.  Your Personal Allowance is based on adjusted net income.  £500 of interest and £500 dividends might all be taxed at 0%.

But they would have added £1,000 to your taxable income total and in turn that is £1,000 extra adjusted net income.

Which could cost you £500 in lost Personal Allowance.  And effectively add £200 to your tax liability. 

Basically income taxed at 0% doesn't always mean no extra tax at all 😳