Higher Rate Tax and Pension relief

sometime_soon

Hello All. So as a complete newbie now just opening my first pension SIPP ( albeit very late in life) , hopefully I am now right in assuming 60k limit ? Self employed and will go into higher rate tax this year but I am slightly confused on the part I claim separately on self assessment. I would like to pay in the max sum for the year as a lump sum ( rather than sat in savings and taxed interest)
Is this amount on the SA the difference between your income above the 20% threshold? Or am I completely confused now! 

Sam_666

Do you own LTD? It will make big difference.

If you do own LTD, ask your accountant about setting up company payments to SIPP.

sometime_soon

No, Sole Trader. 

Smudgeismydog

The £60,000 refers to the Annual Allowance, however, the amount you can pay into your pension is restricted to your annual income.
Therefore, if you earn less than £60,000 (and your post suggests this is the case), then you can’t pay in £60,000.

sometime_soon

Hi. Sorry yes it will be over £60k earnings 

Dazed_and_C0nfused

sometime_soon said:

Hello All. So as a complete newbie now just opening my first pension SIPP ( albeit very late in life) , hopefully I am now right in assuming 60k limit ? Self employed and will go into higher rate tax this year but I am slightly confused on the part I claim separately on self assessment. I would like to pay in the max sum for the year as a lump sum ( rather than sat in savings and taxed interest)
Is this amount on the SA the difference between your income above the 20% threshold? Or am I completely confused now! 

What do you expect your taxable profit to be?

That is likely to be the maximum you can contribute and get tax relief on.  

You contribute the net amount and the pension company adds basic rate tax relief.  For example you paid £24,000 and they will add £6,000 in tax relief to make a gross contribution of £30,000.

You include this on your tax return and your basic rate band will be increased by the amount of the gross contribution.

You need to decide what your aim is, get a much as you can into the pension or just avoiding higher rate tax?

sometime_soon

Dazed_and_C0nfused said:

sometime_soon said:

Hello All. So as a complete newbie now just opening my first pension SIPP ( albeit very late in life) , hopefully I am now right in assuming 60k limit ? Self employed and will go into higher rate tax this year but I am slightly confused on the part I claim separately on self assessment. I would like to pay in the max sum for the year as a lump sum ( rather than sat in savings and taxed interest)
Is this amount on the SA the difference between your income above the 20% threshold? Or am I completely confused now! 

What do you expect your taxable profit to be?

That is likely to be the maximum you can contribute and get tax relief on.  

You contribute the net amount and the pension company adds basic rate tax relief.  For example you paid £24,000 and they will add £6,000 in tax relief to make a gross contribution of £30,000.

You include this on your tax return and your basic rate band will be increased by the amount of the gross contribution.

You need to decide what your aim is, get a much as you can into the pension or just avoiding higher rate tax?

Thanks. Previously stayed away from higher rate but that seems to have been a poor tax decision as savings interest is now adding to make the income higher tax rate anyway. 

So now allowing for extra work, working assumption is £70-£75k. 

No pension so very tax inefficient it seems and hoping to get both in shape by starting a pension for this tax year.  ( Well that’s the idea anyway !) 

Dazed_and_C0nfused

sometime_soon said:

Dazed_and_C0nfused said:

sometime_soon said:

Hello All. So as a complete newbie now just opening my first pension SIPP ( albeit very late in life) , hopefully I am now right in assuming 60k limit ? Self employed and will go into higher rate tax this year but I am slightly confused on the part I claim separately on self assessment. I would like to pay in the max sum for the year as a lump sum ( rather than sat in savings and taxed interest)
Is this amount on the SA the difference between your income above the 20% threshold? Or am I completely confused now! 

What do you expect your taxable profit to be?

That is likely to be the maximum you can contribute and get tax relief on.  

You contribute the net amount and the pension company adds basic rate tax relief.  For example you paid £24,000 and they will add £6,000 in tax relief to make a gross contribution of £30,000.

You include this on your tax return and your basic rate band will be increased by the amount of the gross contribution.

You need to decide what your aim is, get a much as you can into the pension or just avoiding higher rate tax?

Thanks. Previously stayed away from higher rate but that seems to have been a poor tax decision as savings interest is now adding to make the income higher tax rate anyway. 

So now allowing for extra work, working assumption is £70-£75k. 

No pension so very tax inefficient it seems and hoping to get both in shape by starting a pension for this tax year.  ( Well that’s the idea anyway !) 

You haven't really said what your aim is but you won't be able to contribute more than £60k gross and get tax relief.

That is you paying £48k and the pension company adding £12k in basic rate tax relief (that is the only amount they pay when it comes to tax relief, 25% of your contribution).

Providing you income made details of the pension contribution on your return correctly then your basic rate band will be extended from £37,700 to £97,700.  

So limited higher rate relief but a good start to your pension 😉

sometime_soon

Dazed_and_C0nfused said:

sometime_soon said:

Dazed_and_C0nfused said:

sometime_soon said:

Hello All. So as a complete newbie now just opening my first pension SIPP ( albeit very late in life) , hopefully I am now right in assuming 60k limit ? Self employed and will go into higher rate tax this year but I am slightly confused on the part I claim separately on self assessment. I would like to pay in the max sum for the year as a lump sum ( rather than sat in savings and taxed interest)
Is this amount on the SA the difference between your income above the 20% threshold? Or am I completely confused now! 

What do you expect your taxable profit to be?

That is likely to be the maximum you can contribute and get tax relief on.  

You contribute the net amount and the pension company adds basic rate tax relief.  For example you paid £24,000 and they will add £6,000 in tax relief to make a gross contribution of £30,000.

You include this on your tax return and your basic rate band will be increased by the amount of the gross contribution.

You need to decide what your aim is, get a much as you can into the pension or just avoiding higher rate tax?

Thanks. Previously stayed away from higher rate but that seems to have been a poor tax decision as savings interest is now adding to make the income higher tax rate anyway. 

So now allowing for extra work, working assumption is £70-£75k. 

No pension so very tax inefficient it seems and hoping to get both in shape by starting a pension for this tax year.  ( Well that’s the idea anyway !) 

You haven't really said what your aim is but you won't be able to contribute more than £60k gross and get tax relief.

That is you paying £48k and the pension company adding £12k in basic rate tax relief (that is the only amount they pay when it comes to tax relief, 25% of your contribution).

Providing you income made details of the pension contribution on your return correctly then your basic rate band will be extended from £37,700 to £97,700.  

So limited higher rate relief but a good start to your pension 😉

Thankyou. Sorry aim is both - need to start a pension at age 50 . And use this to enable me to be tax efficient rather than just toppling over into higher rate and paying more tax along with all savings now taxed. 

Having no pension before and now in a position of taking on more work , a crash course is necessary in getting a pension up and running which I am now looking to do for this tax year but still rather baffled by the part of claiming on SA if you are a higher tax rate? 

Dazed_and_C0nfused

sometime_soon said:

Dazed_and_C0nfused said:

sometime_soon said:

Dazed_and_C0nfused said:

sometime_soon said:

Hello All. So as a complete newbie now just opening my first pension SIPP ( albeit very late in life) , hopefully I am now right in assuming 60k limit ? Self employed and will go into higher rate tax this year but I am slightly confused on the part I claim separately on self assessment. I would like to pay in the max sum for the year as a lump sum ( rather than sat in savings and taxed interest)
Is this amount on the SA the difference between your income above the 20% threshold? Or am I completely confused now! 

What do you expect your taxable profit to be?

That is likely to be the maximum you can contribute and get tax relief on.  

You contribute the net amount and the pension company adds basic rate tax relief.  For example you paid £24,000 and they will add £6,000 in tax relief to make a gross contribution of £30,000.

You include this on your tax return and your basic rate band will be increased by the amount of the gross contribution.

You need to decide what your aim is, get a much as you can into the pension or just avoiding higher rate tax?

Thanks. Previously stayed away from higher rate but that seems to have been a poor tax decision as savings interest is now adding to make the income higher tax rate anyway. 

So now allowing for extra work, working assumption is £70-£75k. 

No pension so very tax inefficient it seems and hoping to get both in shape by starting a pension for this tax year.  ( Well that’s the idea anyway !) 

You haven't really said what your aim is but you won't be able to contribute more than £60k gross and get tax relief.

That is you paying £48k and the pension company adding £12k in basic rate tax relief (that is the only amount they pay when it comes to tax relief, 25% of your contribution).

Providing you income made details of the pension contribution on your return correctly then your basic rate band will be extended from £37,700 to £97,700.  

So limited higher rate relief but a good start to your pension 😉

Thankyou. Sorry aim is both - need to start a pension at age 50 . And use this to enable me to be tax efficient rather than just toppling over into higher rate and paying more tax along with all savings now taxed. 

Having no pension before and now in a position of taking on more work , a crash course is necessary in getting a pension up and running which I am now looking to do for this tax year but still rather baffled by the part of claiming on SA if you are a higher tax rate? 

You don't "claim" anything.  You enter the gross contribution in one box on the return.

That is then automatically taken into account in the Self Assessment tax calculation.

Just to be clear, it will not reduce the amount of income you pay tax on, it simply increases your basic rate band, meaning more income can be taxed at 20% and less at 40%.  

And there can be other benefits like being eligible for Marriage Allowance or getting £1,000 savings nil rate band rather than £500.

Dazed_and_C0nfused

sometime_soon said:

No, Sole Trader. 

What happened to the partnership you were in?