Avoiding 40% tax

Notfarfromtheborder

Hi, my wife is looking at reducing hrs and taking her NHS pension, however, this will take her taxable earnings to £59042. This is calculated as current pensionable earnings -10% then -10.7%  for pension conts and adding gross annual pension?

How much of this would she need to place in a personal pension to avoid 40% tax, is it simply the difference between the above number and £50270, i.e. £8772?

This number then gets grossed up by the pension company by 25% to £10965?

She then gets tax relief on the extra 20% via tax code, how is this calculated?

Many thanks

Dazed_and_C0nfused

Notfarfromtheborder said:

Hi, my wife is looking at reducing hrs and taking her NHS pension, however, this will take her taxable earnings to £59042. This is calculated as current pensionable earnings -10% then -10.7%  for pension conts and adding gross annual pension?

How much of this would she need to place in a personal pension to avoid 40% tax, is it simply the difference between the above number and £50270, i.e. £8772?

This number then gets grossed up by the pension company by 25% to £10965?

She then gets tax relief on the extra 20% via tax code, how is this calculated?

Many thanks

You are on the right lines but have probably started with too high a contribution.  Assuming she wants to just contribute enough to avoid higher rate tax.

Using your figures her gross contribution would increase her basic rate band to £48,665.  So with Personal Allowance she's at £61,235 before higher rate tax kicks in.

However you need to include any other taxable income she has, for example interest or dividends so your original £59,042 taxable earnings may not be everything.

But if it was she wouldn't be eligible for an "extra 20%".  She would be eligible for higher rate relief on £8,772, the amount her taxable earnings exceed her normal basic rate threshold.  So a likely tax saving of £1,754.

She can make a claim using a new pension relief form on gov.uk (she ignores her NHS "net pay" contributions on that form).  However personally I would wait until her hours had changed and pension started to be paid before contacting HMRC about the pension.  She should also make sure her estimated earnings and pension are updated on her Personal Tax Account to reflect her new hours/pension.

Finally, all of the above assumes you have factored in a part year element to this, if not your figures might be slightly out i.e she will have more earnings and less pension in the first tax year this happens.

TheSpectator

I'm no expert on NHS pensions but is there potential for abatement of the pension with only a 10% reduction in hours?

Notfarfromtheborder

TheSpectator said:

I'm no expert on NHS pensions but is there potential for abatement of the pension with only a 10% reduction in hours?

Thanks, no abatement under new scheme rules

Notfarfromtheborder

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Hi, my wife is looking at reducing hrs and taking her NHS pension, however, this will take her taxable earnings to £59042. This is calculated as current pensionable earnings -10% then -10.7%  for pension conts and adding gross annual pension?

How much of this would she need to place in a personal pension to avoid 40% tax, is it simply the difference between the above number and £50270, i.e. £8772?

This number then gets grossed up by the pension company by 25% to £10965?

She then gets tax relief on the extra 20% via tax code, how is this calculated?

Many thanks

You are on the right lines but have probably started with too high a contribution.  Assuming she wants to just contribute enough to avoid higher rate tax.

Using your figures her gross contribution would increase her basic rate band to £48,665.  So with Personal Allowance she's at £61,235 before higher rate tax kicks in.

However you need to include any other taxable income she has, for example interest or dividends so your original £59,042 taxable earnings may not be everything.

But if it was she wouldn't be eligible for an "extra 20%".  She would be eligible for higher rate relief on £8,772, the amount her taxable earnings exceed her normal basic rate threshold.  So a likely tax saving of £1,754.

She can make a claim using a new pension relief form on gov.uk (she ignores her NHS "net pay" contributions on that form).  However personally I would wait until her hours had changed and pension started to be paid before contacting HMRC about the pension.  She should also make sure her estimated earnings and pension are updated on her Personal Tax Account to reflect her new hours/pension.

Finally, all of the above assumes you have factored in a part year element to this, if not your figures might be slightly out i.e she will have more earnings and less pension in the first tax year this happens.

Thanks, think I'm getting there, I was thinking her pension cont would need to be based on gross rather than net. No interest or dividends to consider. Just to help me further, where do your numbers come from, £48665 and £61235?

Am I right in thinking her pension conts would need to be £7018 grossed up by HMRC to £8772?

Dazed_and_C0nfused

Notfarfromtheborder said:

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Hi, my wife is looking at reducing hrs and taking her NHS pension, however, this will take her taxable earnings to £59042. This is calculated as current pensionable earnings -10% then -10.7%  for pension conts and adding gross annual pension?

How much of this would she need to place in a personal pension to avoid 40% tax, is it simply the difference between the above number and £50270, i.e. £8772?

This number then gets grossed up by the pension company by 25% to £10965?

She then gets tax relief on the extra 20% via tax code, how is this calculated?

Many thanks

You are on the right lines but have probably started with too high a contribution.  Assuming she wants to just contribute enough to avoid higher rate tax.

Using your figures her gross contribution would increase her basic rate band to £48,665.  So with Personal Allowance she's at £61,235 before higher rate tax kicks in.

However you need to include any other taxable income she has, for example interest or dividends so your original £59,042 taxable earnings may not be everything.

But if it was she wouldn't be eligible for an "extra 20%".  She would be eligible for higher rate relief on £8,772, the amount her taxable earnings exceed her normal basic rate threshold.  So a likely tax saving of £1,754.

She can make a claim using a new pension relief form on gov.uk (she ignores her NHS "net pay" contributions on that form).  However personally I would wait until her hours had changed and pension started to be paid before contacting HMRC about the pension.  She should also make sure her estimated earnings and pension are updated on her Personal Tax Account to reflect her new hours/pension.

Finally, all of the above assumes you have factored in a part year element to this, if not your figures might be slightly out i.e she will have more earnings and less pension in the first tax year this happens.

Thanks, think I'm getting there, I was thinking her pension cont would need to be based on gross rather than net. No interest or dividends to consider. Just to help me further, where do your numbers come from, £48665 and £61235?

Am I right in thinking her pension conts would need to be £7018 grossed up by HMRC to £8772?

£48,665 is the standard basic rate band plus £10,965.

£61,235 adds the Personal Allowance.

A net relief at source contribution amount of £7,018 would make the equivalent figures £46,472 and £59,042.

Notfarfromtheborder

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Hi, my wife is looking at reducing hrs and taking her NHS pension, however, this will take her taxable earnings to £59042. This is calculated as current pensionable earnings -10% then -10.7%  for pension conts and adding gross annual pension?

How much of this would she need to place in a personal pension to avoid 40% tax, is it simply the difference between the above number and £50270, i.e. £8772?

This number then gets grossed up by the pension company by 25% to £10965?

She then gets tax relief on the extra 20% via tax code, how is this calculated?

Many thanks

You are on the right lines but have probably started with too high a contribution.  Assuming she wants to just contribute enough to avoid higher rate tax.

Using your figures her gross contribution would increase her basic rate band to £48,665.  So with Personal Allowance she's at £61,235 before higher rate tax kicks in.

However you need to include any other taxable income she has, for example interest or dividends so your original £59,042 taxable earnings may not be everything.

But if it was she wouldn't be eligible for an "extra 20%".  She would be eligible for higher rate relief on £8,772, the amount her taxable earnings exceed her normal basic rate threshold.  So a likely tax saving of £1,754.

She can make a claim using a new pension relief form on gov.uk (she ignores her NHS "net pay" contributions on that form).  However personally I would wait until her hours had changed and pension started to be paid before contacting HMRC about the pension.  She should also make sure her estimated earnings and pension are updated on her Personal Tax Account to reflect her new hours/pension.

Finally, all of the above assumes you have factored in a part year element to this, if not your figures might be slightly out i.e she will have more earnings and less pension in the first tax year this happens.

Thanks, think I'm getting there, I was thinking her pension cont would need to be based on gross rather than net. No interest or dividends to consider. Just to help me further, where do your numbers come from, £48665 and £61235?

Am I right in thinking her pension conts would need to be £7018 grossed up by HMRC to £8772?

£48,665 is the standard basic rate band plus £10,965.

£61,235 adds the Personal Allowance.

A net relief at source contribution amount of £7,018 would make the equivalent figures £46,472 and £59,042.

Not sure I am being thick but where do these numbers come from ?

£48,665 is the standard basic rate band plus £10,965.

Dazed_and_C0nfused

Notfarfromtheborder said:

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Dazed_and_C0nfused said:

Notfarfromtheborder said:

Hi, my wife is looking at reducing hrs and taking her NHS pension, however, this will take her taxable earnings to £59042. This is calculated as current pensionable earnings -10% then -10.7%  for pension conts and adding gross annual pension?

How much of this would she need to place in a personal pension to avoid 40% tax, is it simply the difference between the above number and £50270, i.e. £8772?

This number then gets grossed up by the pension company by 25% to £10965?

She then gets tax relief on the extra 20% via tax code, how is this calculated?

Many thanks

You are on the right lines but have probably started with too high a contribution.  Assuming she wants to just contribute enough to avoid higher rate tax.

Using your figures her gross contribution would increase her basic rate band to £48,665.  So with Personal Allowance she's at £61,235 before higher rate tax kicks in.

However you need to include any other taxable income she has, for example interest or dividends so your original £59,042 taxable earnings may not be everything.

But if it was she wouldn't be eligible for an "extra 20%".  She would be eligible for higher rate relief on £8,772, the amount her taxable earnings exceed her normal basic rate threshold.  So a likely tax saving of £1,754.

She can make a claim using a new pension relief form on gov.uk (she ignores her NHS "net pay" contributions on that form).  However personally I would wait until her hours had changed and pension started to be paid before contacting HMRC about the pension.  She should also make sure her estimated earnings and pension are updated on her Personal Tax Account to reflect her new hours/pension.

Finally, all of the above assumes you have factored in a part year element to this, if not your figures might be slightly out i.e she will have more earnings and less pension in the first tax year this happens.

Thanks, think I'm getting there, I was thinking her pension cont would need to be based on gross rather than net. No interest or dividends to consider. Just to help me further, where do your numbers come from, £48665 and £61235?

Am I right in thinking her pension conts would need to be £7018 grossed up by HMRC to £8772?

£48,665 is the standard basic rate band plus £10,965.

£61,235 adds the Personal Allowance.

A net relief at source contribution amount of £7,018 would make the equivalent figures £46,472 and £59,042.

Not sure I am being thick but where do these numbers come from ?

£48,665 is the standard basic rate band plus £10,965.

The basic rate band is £37,700.  Add a gross relief at source pension contribution of £10,965 (your original suggestion) = £48,665

https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands

SacredStephan

Notfarfromtheborder said:

Hi, my wife is looking at reducing hrs and taking her NHS pension, however, this will take her taxable earnings to £59042. This is calculated as current pensionable earnings -10% then -10.7%  for pension conts and adding gross annual pension?

From 1 April 2025, if your wife's salary is less than £49914, she will pay 9.8% or less in pension contributions.
https://www.nhsemployers.org/publications/nhs-pension-scheme-member-contributions

Is she claiming tax relief for uniform laundry, shoes, professional subscriptions?