Calculating how much I can pay into extra pension to avoid paying Income tax?

Nomunnofun1

TheSpectator said:

Nomunnofun1 said:

TheSpectator said:

ISky11 said:

TheSpectator said:

ISky11 said:

Dazed_and_C0nfused said:

ISky11 said:

Having just got my State Pension I find myself looking like I'll be paying Higher rate tax this year. I'd like to avoid paying higher tax and tbh, as I have state pension now, perhaps I can pay more into a Pension plan to avoid paying any tax.
I have a Works pension, small amount of PAYE and work Self employment. 24/25 tax year looks like I'll have an income of (say) £58,000. If my self employment earnings say £6000 and Paye £3000 what would be the most I could put into a new pension pot this tax year - can anyone help with the setting out the calculation for me pls? 
TIA

How do you think that might be possible?

I think I can open a new pension pot ( at my age and retired!), paying in earned income. If paying into that pension pot it in theory means there will be no income available then to tax me when I do my tax return? Am I wrong?

Very wrong, you will still pay 20% tax on it rather than 40%.

TY for telling me. I'm a bit sketchy on the reply, my bad. So sorry for being obtuse - a little knowledge in my hands doesn't help in situations like this.
When you say "it" in your last response and paying some tax - I'm unsure. I think I've worded very poorly this time! I will have to pay some tax at 20% on my Pension income. I was trying to get to a position where I get the benefit of not paying any tax on my earned income or should I word that as getting a 20 0r 40% 'boost" on the pensions contributions - (i.e. my PAYE and the rest Self employed - the £9,000 I mentioned in the original post. Is that not possible? I thought I might just achieve this by putting all of my earnings into a new pension pot?

Let's say you have exactly £10,000 of untaxed income above the higher rate threshold - you will pay 40% tax = £4000.

You can then pay a net pension contribution of £8,000 and basic rate relief of £2,000 will be added to make it £10.,000. Your basic rate band will be increased by £10,000 meaning that £10,000 income is taxed at 20% instead of 40% so £2,000 instead of 40%. So that £10,000 gross contribution only cost you £6000.

I get where you are coming from (see my post), and you are just creating an example. I believe (open to correction) that the op can only make a contribution up to £9000 gross, being his only ‘earned’ income. 

Hence why I said 'lets say' - far easier to explain with round sum figures and the £9,000 earned income seems an estimate, so why not make it an easier to understand estimate.

We are also assuming not subject to Scottish rates of tax.

Fair enough!

Dazed_and_C0nfused

ISky11 said:

TheSpectator said:

ISky11 said:

Dazed_and_C0nfused said:

ISky11 said:

Having just got my State Pension I find myself looking like I'll be paying Higher rate tax this year. I'd like to avoid paying higher tax and tbh, as I have state pension now, perhaps I can pay more into a Pension plan to avoid paying any tax.
I have a Works pension, small amount of PAYE and work Self employment. 24/25 tax year looks like I'll have an income of (say) £58,000. If my self employment earnings say £6000 and Paye £3000 what would be the most I could put into a new pension pot this tax year - can anyone help with the setting out the calculation for me pls? 
TIA

How do you think that might be possible?

I think I can open a new pension pot ( at my age and retired!), paying in earned income. If paying into that pension pot it in theory means there will be no income available then to tax me when I do my tax return? Am I wrong?

Very wrong, you will still pay 20% tax on it rather than 40%.

TY for telling me. I'm a bit sketchy on the reply, my bad. So sorry for being obtuse - a little knowledge in my hands doesn't help in situations like this.
When you say "it" in your last response and paying some tax - I'm unsure. I think I've worded very poorly this time! I will have to pay some tax at 20% on my Pension income. I was trying to get to a position where I get the benefit of not paying any tax on my earned income or should I word that as getting a 20 0r 40% 'boost" on the pensions contributions - (i.e. my PAYE and the rest Self employed - the £9,000 I mentioned in the original post. Is that not possible? I thought I might just achieve this by putting all of my earnings into a new pension pot?

You cannot avoid paying tax by making relief at source contributions to a relief at source pension like a SIPP.

The £9,000 PAYE income and self employment profits would remain taxable income and be taxed if your Personal Allowance was fully utilised by your pension income.

But pension contributions can change the rate of tax you pay.  Typically moving income from the higher rate bracket to basic rate.

So you originally pay £7,200 to the pension company to get a gross contribution of £9,000.  That is already £1,800 in basic rate tax relief added to your pension fund.  The personal tax saving you will make depends on your total taxbale income (and type(s) of income) but it could be an extra £1,800.

If you are a higher rate payer it is a very tax efficient option to make additional pension contributions like this, even though it doesn't stop you paying tax on the earnings/self employment profits.

BikingBud

ISky11 said:

Having just got my State Pension I find myself looking like I'll be paying Higher rate tax this year. I'd like to avoid paying higher tax and tbh, as I have state pension now, perhaps I can pay more into a Pension plan to avoid paying any tax.
I have a Works pension, small amount of PAYE and work Self employment. 24/25 tax year looks like I'll have an income of (say) £58,000. If my self employment earnings say £6000 and Paye £3000 what would be the most I could put into a new pension pot this tax year - can anyone help with the setting out the calculation for me pls? 
TIA

Pay into a pension to what end?

What will you do with the cash you will accrue?

When you draw it out of a pension do you anticipate being below the higher rate tax threshold?

It is still not clear what sources you have such that the state pension will trip you into higher rate tax?

It appears that you will have £58k -£3k-£9k=£46k (state pension ignored) only gives you £4270 headroom so paying money into a pension now to save tax will likely put you into HR  tax when you withdraw it. Unless of course you are leaving it there for Rachel!

Reduce your working hours?