£53,345 salary but only paying 20% tax

MR_Johnson67

I am demonstrating my total tax ignorance ,,,,

I had always assumed I was paying 40% tax on my salary of £53,345 , but it looks like Im only paying 20%.
(I only looked at my pay slip as  I am expecting an annual pension of £25K (from a previous job) and expected to pay 40% tax on it.)

I am assuming to because I pay 4% into my pension £3,200, for tax purposes my income is
£50,145 (£53,345 - £3,200).  Which is just below the HR threshold. Is this correct?

Grumpy_chap

MR_Johnson67 said:

I am demonstrating my total tax ignorance ,,,,

I had always assumed I was paying 40% tax on my salary of £53,345 , but it looks like Im only paying 20%.
(I only looked at my pay slip as  I am expecting an annual pension of £25K (from a previous job) and expected to pay 40% tax on it.)

I am assuming to because I pay 4% into my pension £3,200, for tax purposes my income is
£50,145 (£53,345 - £3,200).  Which is just below the HR threshold. Is this correct?

Yes, that sounds correct.
You may have other deductions that also reduce your income tax liability.
Any BIK will increase your tax liability, for example health care, car.

Baldytyke88

If you pay money into a pension, that brings down your taxable pay.

If you are expecting to be temporarily in the 40% tax bracket, you could potentially avoid that by putting more money into a pension. If you are permanently going to be paying 40% that could be futile.

Brie

Yes - as I understand it - you only pay 20%.  But if you have a pension being paid as well that will push up the income and the amount above the threshold will get the 40% tax rate.  

So the question then is why take the pension now to lose so much?  Do you need to take it now?  Would you benefit from taking a tax free lumpsum if there is one available?  Could you increase your current pension contributions to keep as much income as possible below the threshold?

Albermarle

When your pension starts, you will most likely get taxed incorrectly. Going from one to two streams of taxable income, it takes some time to get the right tax code against the right income.
It will sort itself out in the end but probably a good idea to register to see your  personal tax account online.

MR_Johnson67

Thank you for your responses. I am due to sell my house an will have some CGT to pay (I was not a resident of the house for >10 years). So finding out what tax band I am in determine if i pay 18% CGT or 24%. 
Thing is I have received some "bonus" at work and some "back pay" while salary was being negotiated (all in my payslip).  I rely on work to do all the tax work (PAYE), it would be unfortunate if I ended up in the 40% bracket due to these extra payments.

mybestattempt

MR_Johnson67 said:

Thank you for your responses. I am due to sell my house an will have some CGT to pay (I was not a resident of the house for >10 years). So finding out what tax band I am in determine if i pay 18% CGT or 24%. 
Thing is I have received some "bonus" at work and some "back pay" while salary was being negotiated (all in my payslip).  I rely on work to do all the tax work (PAYE), it would be unfortunate if I ended up in the 40% bracket due to these extra payments.

When you sell the property you will need to make a return of the UK residential property gain within 60 days.

Assuming the sale goes through soon it will fall within the current 2025/26 tax year.

The return of the UK residential property gain requires you to make what the relevant legislation  (Schedule 2 of the Finance Act 2019) states is a "reasonable"  estimate of your income for the relevant tax year to arrive at the "notional" capital gains tax charge for that year which is payable at that point.

When you make your self assessment return for the 2025/26 tax year it will include your actual income and you must also include the capital gain for the property along with details of the notional capital gains tax paid earlier when you made the Schedule 2 FA2019 return.

At that point the correct amount of capital gains tax is established by reference to your actual income tax rates for the 2025/26 tax year and credit given for the notional capital gains tax.

Dazed_and_C0nfused

MR_Johnson67 said:

Thank you for your responses. I am due to sell my house an will have some CGT to pay (I was not a resident of the house for >10 years). So finding out what tax band I am in determine if i pay 18% CGT or 24%. 
Thing is I have received some "bonus" at work and some "back pay" while salary was being negotiated (all in my payslip).  I rely on work to do all the tax work (PAYE), it would be unfortunate if I ended up in the 40% bracket due to these extra payments.

That isn't how it works, it is your responsibility to make sure the tax code your employer is using is correct.  

Also, pension contributions don't always reduce your taxable income, it depends on which method is being used to get the money into your pension.  If they are made using the "net pay" method, which is very common in public sector pension schemes, then they do reduce your taxable income and you will be able to see the difference between your salary and taxable pay on your payslips/P60.

If they are made using the "relief at source" method then they do not reduce your taxable income.  But they do increase your basic rate band (if you tell HMRC about the contributions).  And you also get pension tax relief added to your pension fund.

kimwp

Just in case you are not aware-

You will pay zero income tax on anything you earn under the personal allowance (currently £12750 I think). 20% on the next amount until the higher rate threshold of £50,270. If you go over that threshold, you don't then pay 40% on everything you earn. Similarly with capital gains- the tax paid on capital gains depends where each pound of the gain sits relative to to threshold. So if you earned £50,000 and therefore we're a basic rate (20%) tax payer, but then had £5k capital gains- some of that gain would be taxed at the lower rate and some would be taxed at the higher rate.

flaneurs_lobster

kimwp said:

Just in case you are not aware

Just in case you are not aware, the tax bands are different in Scotland.....

Grumpy_chap

MR_Johnson67 said:

Thank you for your responses. I am due to sell my house an will have some CGT to pay (I was not a resident of the house for >10 years). So finding out what tax band I am in determine if i pay 18% CGT or 24%. 
Thing is I have received some "bonus" at work and some "back pay" while salary was being negotiated (all in my payslip).  I rely on work to do all the tax work (PAYE), it would be unfortunate if I ended up in the 40% bracket due to these extra payments.

Dependent upon how much the CGT liability is, you might want to plan to avoid the higher rate being incurred.
That almost certainly means delaying drawing the pension if that is an option until the tax-year after the house sale.
You may be able to reduce taxable income by extra pension contributions, particularly is salary sacrifice is an option.
It may even be worth taking some unpaid leave.