Pension Contribution With No Relevant Earnings but Higher Rate Tax

ossian

Hi,

My pension income takes me up to the threshold for higher rate tax in Scotland.  If I contribute £240 a month to my pension grossed up to £300 and if I then withdraw this additional income it will be over the 41% tax band.

Can this additional 21% be reclaimed OR as I have no relevant income can I only get 20% tax relief that the pension scheme claims?

Thanks,
Ossian

Dazed_and_C0nfused

ossian said:

Hi,

My pension income takes me up to the threshold for higher rate tax in Scotland.  If I contribute £240 a month to my pension grossed up to £300 and if I then withdraw this additional income it will be over the 41% tax band.

Can this additional 21% be reclaimed OR as I have no relevant income can I only get 20% tax relief that the pension scheme claims?

Thanks,
Ossian

Are you young enough to be eligible for pension tax relief?

If so the gross contribution of £3,600 will increase your basic rate band by £3,600.

The actual tax saving will depend on how much of your income is taxed at 21% and 42%.  If you only pay 42% on £5 you aren't going to avoid much higher rate tax.

NB.  Scotland no longer has a 41% tax rate.

ossian

My taxable income will be £43662 (from pensions) although my relevant earnings are zero. My age is 55 and you are correct it is 42%. So I think you are explaining that I should be able to increase my income by £3660 without having to pay 42% tax or at least being able to reclaim the additional tax on that £3660.

Dazed_and_C0nfused

ossian said:

My taxable income will be £43662 (from pensions) although my relevant earnings are zero. My age is 55 and you are correct it is 42%. So I think you are explaining that I should be able to increase my income by £3660 without having to pay 42% tax or at least being able to reclaim the additional tax on that £3660.

Your taxable income from pensions is only one part of things.

What other taxable income do you have.

55 is fine for pension contributions, 75 is the end point.

Presumably you mean £3,600 not £3,660?

ossian

Yes, £3600. Sorry a poor night's sleep has frazzled my brain,

I have no other income. I have ISA investments but intend to keep them for exceptional expenditure but they are not taxable income. I will have state pension when I reach state pension age but that's over a decade away.

Dazed_and_C0nfused

ossian said:

Yes, £3600. Sorry a poor night's sleep has frazzled my brain,

I have no other income. I have ISA investments but intend to keep them for exceptional expenditure but they are not taxable income. I will have state pension when I reach state pension age but that's over a decade away.

You do realise that if you only contribute £3,600 (gross) and then take that out of the pension only £2,700 is taxable, the other £900 is a TFLS.  Unless you have already taken the maximum tax free cash from pensions?

So do you really mean an extra £3,600 income or an extra £2,700 🤔

ossian

Dazed_and_C0nfused said:

ossian said:

Yes, £3600. Sorry a poor night's sleep has frazzled my brain,

I have no other income. I have ISA investments but intend to keep them for exceptional expenditure but they are not taxable income. I will have state pension when I reach state pension age but that's over a decade away.

You do realise that if you only contribute £3,600 (gross) and then take that out of the pension only £2,700 is taxable, the other £900 is a TFLS.  Unless you have already taken the maximum tax free cash from pensions?

So do you really mean an extra £3,600 income or an extra £2,700 🤔

Thanks.  Yes I do realise that normally people take 2700 taxable plus 900 tax free which will be my usual method of withdrawal.