Topping up my SIPP using unused allowances from previous 3 years pension contributions

andys15

Isthisforreal99 said:

andys15 said:

Isthisforreal99 said:

andys15 said:

Isthisforreal99 said:

andys15 said:

Dazed_and_C0nfused said:

andys15 said:

QrizB said:

andys15 said:

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

He's got a point.

Making a pension contribution large enough to get you out of the 45% band for two years in a row (his suggestion) is a better outcome than getting out of the 45%, 40% and 20% bands for a single year (your suggestion).

Thanks.  But because I don’t get any personal allowance does that not effectively mean I am paying 60% tax. If I split it over two years then I don’t get below the £125k.  I am not great at this though. 

Correct.  If your adjusted net income is £125,140 or more you will have lost all of your Personal Allowance and have the 60% scenario affecting you.

Thanks dazed.  So would you say it’s best to pay £141k this tax year.   How much would I effectively get in that situation and will I get the tax I have paid on my interest back too.  

Why £141k?  Your immediate goal should be to get your Net Adjusted Income down to £99,999 which will get your personal allowance back and eliminate 45% tax and the '60% tax trap' - then do the same the following year.

So if I get paid £190k.  Then if I pay £141k, then £177k will be paid gross into my SIPP, which takes my net income down to £12570. 

Is that right in my assumptions.  

But why do you want to do that? You are losing out on higher rate tax relief by doing so. 

So should I not pay any money into my sipp to get tax back? 

What would you do?  I am paying so much tax on my interest.  Thought i should do this and use my allowance. 

I suggest you get some proper advice, if your current advisor cannot advise on the tax implications then find one that can.

And stop relying on AI for financial advice.

Yes.  A valuable lesson learnt.  I have not used AI before and it seems so plausible but clearly not.  Thank you. 

andys15

QrizB said:

andys15 said:

QrizB said:

andys15 said:

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

He's got a point.

Making a pension contribution large enough to get you out of the 45% band for two years in a row (his suggestion) is a better outcome than getting out of the 45%, 40% and 20% bands for a single year (your suggestion).

Thanks.  But because I don’t get any personal allowance does that not effectively mean I am paying 60% tax. If I split it over two years then I don’t get below the £125k.  I am not great at this though. 

There's a lot of missing info so I can't be certain, but if you're earning £191k gross in England then the MSE tax calculator says you'll take home £113k. You'll pay £72k in tax and £6k in NI.

• If you contribute £141k into a relief-at-source pension, that'll receive 20% tax relief and be grossed up to £176.25k. You'll get your Personal Allowance back, pay £435 in tax and the same £6k in NI.
• If you contribute £71k into a relief-at-source pension, that'll receive 20% tax relief and be grossed up to £88.75k. You'll get most of your personal allowance back, pay £29k in tax and the same £6k in NI.

Over two years, then:

• Making a one-off payment of £141k means paying £72k + £435 in tax.
• Making two £71k payments means paying £29k + £29k in tax.

Splitting over two years means paying ~£14k less in tax.

This is a very simple model and there might be more options to play with - that's why you have an IFA - but illustrates the point.

What if the gov change the tax relief in the budget in march. 

Isthisforreal99

andys15 said:

QrizB said:

andys15 said:

QrizB said:

andys15 said:

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

He's got a point.

Making a pension contribution large enough to get you out of the 45% band for two years in a row (his suggestion) is a better outcome than getting out of the 45%, 40% and 20% bands for a single year (your suggestion).

Thanks.  But because I don’t get any personal allowance does that not effectively mean I am paying 60% tax. If I split it over two years then I don’t get below the £125k.  I am not great at this though. 

There's a lot of missing info so I can't be certain, but if you're earning £191k gross in England then the MSE tax calculator says you'll take home £113k. You'll pay £72k in tax and £6k in NI.

• If you contribute £141k into a relief-at-source pension, that'll receive 20% tax relief and be grossed up to £176.25k. You'll get your Personal Allowance back, pay £435 in tax and the same £6k in NI.
• If you contribute £71k into a relief-at-source pension, that'll receive 20% tax relief and be grossed up to £88.75k. You'll get most of your personal allowance back, pay £29k in tax and the same £6k in NI.

Over two years, then:

• Making a one-off payment of £141k means paying £72k + £435 in tax.
• Making two £71k payments means paying £29k + £29k in tax.

Splitting over two years means paying ~£14k less in tax.

This is a very simple model and there might be more options to play with - that's why you have an IFA - but illustrates the point.

What if the gov change the tax relief in the budget in march. 

There isn't a budget in March.

Marcon

As others have said: get some proper advice from a competent IFA. Nobody here can give an answer based on a full understanding of your situation because you don't seem to understand it yourself - but an IFA can ask (and if necessary re-ask) until they have the facts needed to give you best advice.

Free advice, whether from random strangers on the internet or AI, has an unhappy chance of being worth as much as you paid for it...

andys15

I thought there was a spring budget. 

DRS1

andys15 said:

I thought there was a spring budget. 

There used to be.  Nowadays it is in the autumn.

Isthisforreal99

andys15 said:

I thought there was a spring budget. 

Has been in the past but govt said going forward there would be one fiscal event a year and we're not 2 months past the budget so why would they have another in March. 

Dazed_and_C0nfused

Isthisforreal99 said:

andys15 said:

I thought there was a spring budget. 

Has been in the past but govt said going forward there would be one fiscal event a year and we're not 2 months past the budget so why would they have another in March. 

Well it always provides opportunity for lots of (pretty pointless) speculation on here for a start, why spoil that fun 😉

DRS1

andys15 said:

Isthisforreal99 said:

andys15 said:

Isthisforreal99 said:

andys15 said:

Dazed_and_C0nfused said:

andys15 said:

QrizB said:

andys15 said:

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

He's got a point.

Making a pension contribution large enough to get you out of the 45% band for two years in a row (his suggestion) is a better outcome than getting out of the 45%, 40% and 20% bands for a single year (your suggestion).

Thanks.  But because I don’t get any personal allowance does that not effectively mean I am paying 60% tax. If I split it over two years then I don’t get below the £125k.  I am not great at this though. 

Correct.  If your adjusted net income is £125,140 or more you will have lost all of your Personal Allowance and have the 60% scenario affecting you.

Thanks dazed.  So would you say it’s best to pay £141k this tax year.   How much would I effectively get in that situation and will I get the tax I have paid on my interest back too.  

Why £141k?  Your immediate goal should be to get your Net Adjusted Income down to £99,999 which will get your personal allowance back and eliminate 45% tax and the '60% tax trap' - then do the same the following year.

So if I get paid £190k.  Then if I pay £141k, then £177k will be paid gross into my SIPP, which takes my net income down to £12570. 

Is that right in my assumptions.  

But why do you want to do that? You are losing out on higher rate tax relief by doing so. 

So should I not pay any money into my sipp to get tax back? 

What would you do?  I am paying so much tax on my interest.  Thought i should do this and use my allowance. 

No-one is saying you shouldn't top up your SIPP. 

It is just a question of what is the most tax efficient use of your money.  If you can structure things to get you to the top of the basic rate tax band then that may save you higher and additional rate tax (and the 60% bit) and give you the £1000 personal savings allowance for the interest.  More than that may be better used next tax year if you are going to be a high earner for that year.

You might also finesse things around whether it is better to save 40% tax this year or 45% (or 60%)  tax next year depending on the figures.