Additional pension contributions and Tax bands

Ciliumfuture

Hi

I have a bonus payment this year due to working twice the hours I did last year, which puts my gross salary at £190k. I am thinking of putting £90k into a SIPP. 

I would like to know if this would reduce my taxable earnings to £100k, so that I can avoid the Additional rate tax band, as well as reclaim my tax-free allowance of £12,570. 

I know that contributing £90k into the SIPP would be above the £60k limit, and I will have to pay tax on the additional £30k. I don't have any Annual allowance carry forward from previous years, and I don't have any tapering of Annual allowance.

If my tax band is only adjusted for the £60k contribution, it would still leave me in the Additional rate tax band, and the plan to boost my pension for an earlier retirement would be a problem. Any thoughts would be most appreciated. 

Thanks

DRS1

Does this work?  Try putting your figures in the work sheet on this page to see.

Pension savings — tax charges (Self Assessment helpsheet HS345) - GOV.UK

Dazed_and_C0nfused

Ciliumfuture said:

Hi

I have a bonus payment this year due to working twice the hours I did last year, which puts my gross salary at £190k. I am thinking of putting £90k into a SIPP. 

I would like to know if this would reduce my taxable earnings to £100k, so that I can avoid the Additional rate tax band, as well as reclaim my tax-free allowance of £12,570. 

I know that contributing £90k into the SIPP would be above the £60k limit, and I will have to pay tax on the additional £30k. I don't have any Annual allowance carry forward from previous years, and I don't have any tapering of Annual allowance.

If my tax band is only adjusted for the £60k contribution, it would still leave me in the Additional rate tax band, and the plan to boost my pension for an earlier retirement would be a problem. Any thoughts would be most appreciated. 

Thanks

You cannot reduce your taxable income by contributing to a SIPP.

To get £90k into a SIPP you would pay £72k.  The pension company would add £18k in pension tax relief, making a gross contribution of £90k.

Your basic rate band would be increased from £37,700 to £127,700.

Your adjusted net income, which is what is used to determine your Personal Allowance, is reduced by £90k.

Your taxable income (which is key part of adjusted net income) would not be reduced though.

Ciliumfuture

Thanks. If I managed to contribute into the SIPP to make the Adjusted Net Income to below £100k, would I get the full personal allowance of £12,570?

Also, you mentioned "Your basic rate band would be increased from £37,700 to £127,700" 
Is the £127,700 of the gross income, or the Adjusted net income?

This is really helpful. Thanks. 

Marcon

Any scope for having this contribution made by salary sacrifice, or have you already received the bonus?

squirrelpie

Dazed_and_C0nfused said:

Ciliumfuture said:

Hi

I have a bonus payment this year due to working twice the hours I did last year, which puts my gross salary at £190k. I am thinking of putting £90k into a SIPP. 

I would like to know if this would reduce my taxable earnings to £100k, so that I can avoid the Additional rate tax band, as well as reclaim my tax-free allowance of £12,570. 

I know that contributing £90k into the SIPP would be above the £60k limit, and I will have to pay tax on the additional £30k. I don't have any Annual allowance carry forward from previous years, and I don't have any tapering of Annual allowance.

If my tax band is only adjusted for the £60k contribution, it would still leave me in the Additional rate tax band, and the plan to boost my pension for an earlier retirement would be a problem. Any thoughts would be most appreciated. 

Thanks

You cannot reduce your taxable income by contributing to a SIPP.

To get £90k into a SIPP you would pay £72k.  The pension company would add £18k in pension tax relief, making a gross contribution of £90k.

Your basic rate band would be increased from £37,700 to £127,700.

Your adjusted net income, which is what is used to determine your Personal Allowance, is reduced by £90k.

Your taxable income (which is key part of adjusted net income) would not be reduced though.

What about the annual allowance charge?

Marcon

OP - given the amounts involved, is it really sensible to rely on input from random strangers on the internet, who may or may not know what they're talking about - and certainly aren't insured if they get it wrong.

With a salary of £190K this year, maybe invest a bit of it in getting some proper (paid for) advice from someone known to be qualified - and insured - to give it?

Dazed_and_C0nfused

squirrelpie said:

Dazed_and_C0nfused said:

Ciliumfuture said:

Hi

I have a bonus payment this year due to working twice the hours I did last year, which puts my gross salary at £190k. I am thinking of putting £90k into a SIPP. 

I would like to know if this would reduce my taxable earnings to £100k, so that I can avoid the Additional rate tax band, as well as reclaim my tax-free allowance of £12,570. 

I know that contributing £90k into the SIPP would be above the £60k limit, and I will have to pay tax on the additional £30k. I don't have any Annual allowance carry forward from previous years, and I don't have any tapering of Annual allowance.

If my tax band is only adjusted for the £60k contribution, it would still leave me in the Additional rate tax band, and the plan to boost my pension for an earlier retirement would be a problem. Any thoughts would be most appreciated. 

Thanks

You cannot reduce your taxable income by contributing to a SIPP.

To get £90k into a SIPP you would pay £72k.  The pension company would add £18k in pension tax relief, making a gross contribution of £90k.

Your basic rate band would be increased from £37,700 to £127,700.

Your adjusted net income, which is what is used to determine your Personal Allowance, is reduced by £90k.

Your taxable income (which is key part of adjusted net income) would not be reduced though.

What about the annual allowance charge?

@DRS1 had already posted a link to an explanation about that aspect of things so I covered the other aspects the op was interested in.