Counteracting high tax by paying extra to pension?

olb81

Due to interest on savings my tax code means I'm being taxed a lot more at the moment. Would it be a good idea to pay extra into my pension and get the tax back that way?

eskbanker

Pension contributions will usually be tax-efficient, so chances are that it'll be worth doing if it's money you don't need in the short term, but best share some figures for more informed guidance....

Vitor

Possibly but you shouldn't distort your financial planning just to save income tax 

DRS1

and get as much of your savings into ISAs as you can.

Grumpy_chap

olb81 said:

Due to interest on savings my tax code means I'm being taxed a lot more at the moment. Would it be a good idea to pay extra into my pension and get the tax back that way?

Pension contributions are usually one of the most tax efficient options with excess income / capital.
There are limits on the level of contributions that can be made to a pension - for most people that limit if their level of earned income.

What level of savings interest do you have that is resulting in the high tax being incurred?
Have you ensured you are claiming the Personal Savings Allowance?
( https://www.moneysavingexpert.com/savings/personal-savings-allowance/ )
Have you ensured that as much as possible of your savings are in tax exempt wrappers (ISA)?

In other threads recently you have indicated that your main employment would be some way from the higher rate  income tax threshold.  Are there other sources of income also?  The members of the forum will be able to give more appropriate advice if there is a clear picture of your overall finances.

olb81 said:

Currently in a full time job earning about 27k.

( https://forums.moneysavingexpert.com/discussion/6650651/skills-for-life#latest )

Be mindful of not letting the tax tail wag the dog resulting in limitations on what you can do now pending a future pension.  Don't leave yourself short.

ppp123

Paying extra into a pension can be tax-efficient, but it’s usually better as part of an overall plan rather than just reacting to a tax code change.

Before locking money away, make sure you’re using your Personal Savings Allowance and sheltering as much as possible in ISAs. Pension contributions help with income tax, but they don’t fix the underlying issue if savings interest is pushing you over allowances.

If you’re on £27k PAYE, it’s worth checking HMRC have actually applied the allowance correctly before making decisions.

poseidon1

olb81 said:

Due to interest on savings my tax code means I'm being taxed a lot more at the moment. Would it be a good idea to pay extra into my pension and get the tax back that way?

I see your salary appears to be around £27k. Therefore  I can't see how pension contributions can generate tax refunds unless your quantum of bank interest earned, exceeds your annual salary pushing you into higher rate tax. Is this the case?

If not, best case scenario for you is gross personal contributions to a pension would attract tax relief added to your contribution within the pension fund, but that does not translate into a lower tax bill on your bank interest.

As suggested by others, using your annual ISA allowance ( if not doing so) to take your interest out of  future tax charges seems to make sense in this instance.

Grumpy_chap

poseidon1 said:

I see your salary appears to be around £27k. Therefore  I can't see how pension contributions can generate tax refunds unless your quantum of bank interest earned, exceeds your annual salary pushing you into higher rate tax. Is this the case?

OP - where are you located?

Are you referring to the Higher Rate income tax band for England, Wales & NI, so a threshold that starts at £50,270 or are you in Scotland and referring to the Intermediate Rate threshold at £27,492?