Did I get it right this time?

owlowlowl

A few weeks ago, I posted a very confused thread trying to figure out how much we should contribute to my husband's pension to make full use of the amount of tax relief he would get at 40%. My post was incredibly confused and contained almost none of the information that was needed. People were incredibly kind and patient in explaining this to me and asking me for the info that was needed.

I have since been looking into the questions that people asked, and I am hoping I now have everything I need.

So husband earns £85,414.
He pays his pension by salary sacrifice. 
Current contribution (no AVCs) pcm is £434.19. £5210.28 a year.
In his most recent pension statement he had used £20,328 of his £60,000 tax allowance. (I guess the 'extra' is employer contribution??).

Threshold for 40% tax is £50,271.

So am I right in thinking we can contribute £85414-50271 = £35143 into a pension each year to maximise his 40% tax relief? 

Does this mean he can contribte £35143-£5210 = £29,933 more a year to maximise tax relief at 40%? That would be an extra £2494 a month? 

Or do we need to take account of what his employer is contributing in this somehow?? 

Please help me understand not just the answer but how to calculate this. I am trying really, really hard to get on top of pensions not just so I know what to do but so I actually understand how all the calculations work properly. (I am the kind of person who doesn't feel confident unless they understand the working. I am also incredibly bad at maths, which is a really poor combination of traits to have). 

Dazed_and_C0nfused

owlowlowl said:

A few weeks ago, I posted a very confused thread trying to figure out how much we should contribute to my husband's pension to make full use of the amount of tax relief he would get at 40%. My post was incredibly confused and contained almost none of the information that was needed. People were incredibly kind and patient in explaining this to me and asking me for the info that was needed.

I have since been looking into the questions that people asked, and I am hoping I now have everything I need.

So husband earns £85,414.
He pays his pension by salary sacrifice. 
Current contribution (no AVCs) pcm is £434.19. £5210.28 a year.
In his most recent pension statement he had used £20,328 of his £60,000 tax allowance. (I guess the 'extra' is employer contribution??).

Threshold for 40% tax is £50,271.

So am I right in thinking we can contribute £85414-50271 = £35143 into a pension each year to maximise his 40% tax relief? 

Does this mean he can contribte £35143-£5210 = £29,933 more a year to maximise tax relief at 40%? That would be an extra £2494 a month? 

Or do we need to take account of what his employer is contributing in this somehow?? 

Please help me understand not just the answer but how to calculate this. I am trying really, really hard to get on top of pensions not just so I know what to do but so I actually understand how all the calculations work properly. (I am the kind of person who doesn't feel confident unless they understand the working. I am also incredibly bad at maths, which is a really poor combination of traits to have). 

If the USS operate a net pay scheme then what he earns may well not be relevant when it comes to ensuring he only pays enough extra to benefit from 40% tax relief.

What do you expect his P60 will show his taxable earnings as for 2025/26?

What other taxable income does he have (the actual amounts including anything that will be taxed at 40%).

Are the normal USS contributions definitely the only contributions he has paid so far in this tax year?  Nothing to a personal pension, SIPP or USS DC fund?

Also, your question seems to be focusing on two different things.  What he can pay to get 40% relief and the annual allowance.  Does he have any unused annual allowance from the previous three tax years available to carry forward and use in 2025/26?

owlowlowl

Thank you Dazed!

No other taxable income from 2025-6. 
The USS contributions he is making are for DB and DC combined, that's the grand total. (I know, I know, we should have been on this years ago, we are pathetically disorganised about it). 
His P60 for 2025 said his earnings were £77,820 - I imagine it would be much the same this year as he's hardly had a pay increase (academia, eh).


The question I really want asked is the one about how much he should pay a month to max out his 40% tax relief.

The annual allowance question - he has bags left from the two previous years. That was going to be my next question on the forum actually! But I want to work out how to max out his 40% tax relief first (work out how much to pay in AVCs) then figure out how we can use previous years allowances. I'm pretty slow at this stuff, I have to go one step at a time.

Dazed_and_C0nfused

owlowlowl said:

Thank you Dazed!

No other taxable income from 2025-6. 
The USS contributions he is making are for DB and DC combined, that's the grand total. (I know, I know, we should have been on this years ago, we are pathetically disorganised about it). 
His P60 for 2025 said his earnings were £77,820 - I imagine it would be much the same this year as he's hardly had a pay increase (academia, eh).


The question I really want asked is the one about how much he should pay a month to max out his 40% tax relief.

The annual allowance question - he has bags left from the two previous years. That was going to be my next question on the forum actually! But I want to work out how to max out his 40% tax relief first (work out how much to pay in AVCs) then figure out how we can use previous years allowances. I'm pretty slow at this stuff, I have to go one step at a time.

What his last P60 showed is irrelevant.

To be able to answer this you need to look at his latest payslips for this tax year and starting with his latest taxable pay amount (to month 6 of the tax year?) estimate what his P60 will show if for the year to 5 April 2026.

That will then enable you to calculate how much of his income will fall into the 40% band.

And once you know that you can work out how much extra he could pay to benefit from 40% tax relief.

You will also need to establish what method is being used for the extra contributions as that is key to this.

Net pay
Relief at source
Salary sacrifice

owlowlowl

Thank you Dazed, this is really helpful. I'm so grateful for your patience. 

So going back through his payslips for the last 6 months and estimated ahead, I think his taxable pay next year will be £79,644.

So do I subtract the tax threshold from THAT sum? £79644- £50,271 = £29,373? So he can pay in £2447 a month?

owlowlowl

Oh and it's definitely salary sacrifice, that IS something I've checked and doublechecked.

Dazed_and_C0nfused

owlowlowl said:

Thank you Dazed, this is really helpful. I'm so grateful for your patience. 

So going back through his payslips for the last 6 months and estimated ahead, I think his taxable pay next year will be £79,644.

So do I subtract the tax threshold from THAT sum? £79644- £50,271 = £29,373? So he can pay in £2447 a month?

By "next year" do you mean the current tax year, ending on 5 April 2026?

owlowlowl

Yes, sorry! Dazed_and_C0nfused said:

owlowlowl said:

Thank you Dazed, this is really helpful. I'm so grateful for your patience. 

So going back through his payslips for the last 6 months and estimated ahead, I think his taxable pay next year will be £79,644.

So do I subtract the tax threshold from THAT sum? £79644- £50,271 = £29,373? So he can pay in £2447 a month?

By "next year" do you mean the current tax year, ending on 5 April 2026?

Yes, sorry, this will be the total for THIS current tax year endign 5 April 2026

Dazed_and_C0nfused

owlowlowl said:

Oh and it's definitely salary sacrifice, that IS something I've checked and doublechecked.

If it is salary sacrifice he won't be paying anything into the pension.

He will need to agree to take a reduced salary and in return his employer will make extra employer contributions.  There is no pension tax relief available on employer contributions but he avoids paying both tax (and NI) on the salary he no longer receives.

The other advantage of salary sacrifice is because he isn't contributing to the pension he doesn't need to involve HMRC as there is no tax relief for him to claim.

QrizB

owlowlowl said:

So do I subtract the tax threshold from THAT sum? £79644- £50,271 = £29,373? So he can pay in £2447 a month?

As we're halfway through the current tax year, you've only got six months left to salary sacrifice another £29373. So you could be sacrificing almost £5k a month (subject to minimum wage and actually being able to live on whatever is left).

owlowlowl

Dazed_and_C0nfused said:

owlowlowl said:

Oh and it's definitely salary sacrifice, that IS something I've checked and doublechecked.

If it is salary sacrifice he won't be paying anything into the pension.

He will need to agree to take a reduced salary and in return his employer will make extra employer contributions.  There is no pension tax relief available on employer contributions but he avoids paying both tax (and NI) on the salary he no longer receives.

The other advantage of salary sacrifice is because he isn't contributing to the pension he doesn't need to involve HMRC as there is no tax relief for him to claim.

So USS has two parts: DB and DC.

The extra that we pay in doesn't hit the DB element of the scheme.This is set in stone. It is this bit that employers contribute to. 

Anything that you pay in that is extra goes into the DC part of the scheme. Employers don't contribute to this, so you don't get 'extra' if you pay in more. 

The plan is not to touch the DB element. That stays.

The question is whether to take the AVCs that make up the DC part and put them in a SIPP instead. Cons: we lose the NI relief (around £1000 pa). Pros: We make a 6% return not a 1% return on the money leaving us hundreds of thousands of pounds wealthier in retirement.