Cutting tax ahead of end 25/26 tax year - check calcs

Strummer22

Hi all,

I would just like a sense check of my calcs please. I've laid these out in the same way as the self-assessment calculation.

Pay from all employments	£ 53,100.00
Interest from UK banks, building societies and securities etc	£0.00
Dividends from UK companies	£ 11,344.80
Total income received	£ 64,444.80
minus Personal Allowance	£12,570.00
Total income on which tax is due	£ 51,874.80

Your basic rate limit has been increased by
£ 3,000.00	Pension
£ 7,445.00	GA
to
£ 48,145.00	Total

	Amount	Percentage	Total
Pay, pensions, profit etc. (UK rate for England and Northern Ireland)
Basic rate	£ 40,530.00	x 20%	£8,106.00
Savings interest from banks or building societies, securities etc.
Basic rate band at nil rate	£0.00	x 0%	£0.00
Dividends from companies etc
Basic rate at nil rate	£500.00	x 0%	£0.00
Basic rate	£ 7,615.00	x 8.75%	£666.31
Higher rate	£ 3,229.80	x33.75%	£1,090.06
Income Tax due after allowances and reliefs			£9,862.37
minus Marriage Allowance Transfer	£0.00	x 20%	£0.00
Income Tax due after tax reductions	£9,862.37
Income Tax due	£9,862.37

Am I correct that because of pension and GA allowances, I will pay 20% tax on my employment income minus personal allowance (£53,100 - £12,570 = £40,530.00)?

I would be paying higer rate tax on £3,230 of my dividend. If I make an additional pension contribution of £2,585, that would gross up to £3,230, thereby extending my basic rate band to cover the whole dividend and saving 25% (=33.75% - 8.75%) on £3,230 of the dividend, a tax saving of £807.50. I would also retain the £252 MA for a total saving of £1,059.50.

Based on the above, a pension contribution of £2,585 would add £3,232 to my pension (when grossed up), and save me £1,059.50 on my income tax bill. So I would have £1,525.50 less in my current account but £3,232 more in my pension, a net gain of £1,706 - is that correct?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6657147/cutting-tax-ahead-of-end-25-26-tax-year-check-calcs

I think you may have missed a little quirk of the Marriage Allowance legislation.

Tax reduction: entitlement

(1)An individual is entitled to a tax reduction for a tax year of the appropriate percentage of the transferable amount if the conditions in subsection (2) are met.

(2)The conditions are that—

(a)the individual is the gaining party (see section 55C(1)(a)) in the case of an election under section 55C which is in force for the tax year

(b)the individual is not, for the tax year, liable to tax at a rate other than the basic rate, the default basic rate, the savings basic rate, the dividend nil rate, the Scottish basic rate,a Scottish rate below the Scottish basic rate, the Scottish intermediate rate, the Welsh basic rate,] the dividend ordinary rate, the savings nil rate or the starting rate for savings,

(ba)if for the tax year the individual is liable to tax at the dividend nil rate, the individual would for that year neither be liable to tax at the dividend upper rate, nor be liable to tax at the dividend additional rate, if section 13A (dividend nil rate) were omitted,

Strummer22

Thanks, D&C to the rescue again 🤣

Is this a consequence of the dividend nil rate being taxable (just at 0%)?

Regardless, I can see that I need to increase my pension contribution so that my basic rate limit is increased to above £51,875 - i.e. my income from employment minus personal allowance plus total dividend received: £53,100 -£12,570 + £11,345 = £51,875.

I calculate that a pension contribution of £2,985 would do the trick, increasing my basic rate limit by another £3,731 to £51,876 - that's £1 more than my total income on which tax is due.

Tax due without additional pension contribution £9,987.43

Tax due with additional pension contribution £8,802.93

• Pension contribution £2,985
• Grossed up pension contribution: £3,731.25 (£746.25 extra)
• Tax saving: £1,184.50
• "Cost" of pension contribition = £2,985 - £1,184.50 = £1,800.50
• Net gain: £1,930.75

Sound right?

Looks like this is a good option for me.