Savings Interest, Tax and Pension contributions.

singhini

Lets keep it simple
The more you put into your personal pension, the more tax relief the pension company will claim back. 

I assume you do self-assessment and are claiming back the full 40% relief (becoz the pension company only claim back 20% and yo need to claim the other 20% from HMRC)

Organgrinder

singhini said:

Organgrinder said:

Yes I look at all my taxable income and pay an amount into my pension that in effect make me a basic rate tax payer.

Therefore your not a 40% tax payer and so your savings allowance is NOT £500 

Thanks. All I needed to know.

Perhaps I should have said "were I not paying into a pension".

But all good. Happy with the outcome.

Organgrinder

singhini said:

Lets keep it simple
The more you put into your personal pension, the more tax relief the pension company will claim back. 

I assume you do self-assessment and are claiming back the full 40% relief (becoz the pension company only claim back 20% and yo need to claim the other 20% from HMRC)

Yes, except it's all done via PAYE and adjustments to my tax code.

But nice to learn something. I pay tax at 40%. I claim it back. I hadn't realised that would make me a basic rate payer in the eyes of HMRC and hence allow me £1000 in tax free interest.

Seems somewhat bizarre but happy with that.

singhini

Organgrinder said:

singhini said:

Lets keep it simple
The more you put into your personal pension, the more tax relief the pension company will claim back. 

I assume you do self-assessment and are claiming back the full 40% relief (becoz the pension company only claim back 20% and yo need to claim the other 20% from HMRC)

Yes, except it's all done via PAYE and adjustments to my tax code.

But nice to learn something. I pay tax at 40%. I claim it back. I hadn't realised that would make me a basic rate payer in the eyes of HMRC and hence allow me £1000 in tax free interest.

Seems somewhat bizarre but happy with that.

Perfect, becoz thats the most tax efficient way (im sure you know that anyway).

Now lets say you have something like £20k knocking about and not sure what to do with it. You could either put it into an ISA or SIPP

ISA will give you immediate access to you money if you need it, whereas SIPP can only be accessed as retirement age (however the SIPP company will immediately claim £5k tax relief so your £20k is actually £25K)

If you were to go down the SIPP route, you might find your not even a 20% tax payer (more like 8% or 9%) 
Just a thought 

Organgrinder

singhini said:

Organgrinder said:

singhini said:

Lets keep it simple
The more you put into your personal pension, the more tax relief the pension company will claim back. 

I assume you do self-assessment and are claiming back the full 40% relief (becoz the pension company only claim back 20% and yo need to claim the other 20% from HMRC)

Yes, except it's all done via PAYE and adjustments to my tax code.

But nice to learn something. I pay tax at 40%. I claim it back. I hadn't realised that would make me a basic rate payer in the eyes of HMRC and hence allow me £1000 in tax free interest.

Seems somewhat bizarre but happy with that.

Perfect, becoz thats the most tax efficient way (im sure you know that anyway).

Now lets say you have something like £20k knocking about and not sure what to do with it. You could either put it into an ISA or SIPP

ISA will give you immediate access to you money if you need it, whereas SIPP can only be accessed as retirement age (however the SIPP company will immediately claim £5k tax relief so your £20k is actually £25K)

If you were to go down the SIPP route, you might find your not even a 20% tax payer (more like 8% or 9%) 
Just a thought 

My actual tax rate last year was a little more than you stated (approx 11-12%) but yes I agree. Ordinarily I'd put it into my pension but I need it in the new tax year and have already maxed out my ISA allowance.

Anyway thank you for the explanation. It's not a huge amount of difference tax wise, but better in my pocket than HMRC's.

kimwp

Remember your savings interest, dividends etc that are not tax protected will contribute to the calculation of whether you are a basic or higher rate tax payer