SIPP contributions by HR pensioner

PKY

I'm trying to find the goldilocks level of income to use all available allowances to minimize taxes in drawdown.

If I wanted to drawdown just enough to only pay lower rate tax but also claim higher rate tax relief on a £2,880 net minimal pension contribution should I massage my total income to

£50,200 + £2,880 = £53,080?

Would this still get me the higher rate tax relief of £720 (£3,600 x 20%) on the pension contribution?

And would this keep me in the lower tax rates for savings, dividends and capital gains taxes and allowances?

DRS1

Why isn't the number 50270 + 3600 = 53870?

PKY

https://forums.moneysavingexpert.com/discussion/comment/81963941#Comment_81963941

Thanks for the correction DRS1….of course the upper limit of basic rate tax is £50,270!

…and thanks for clarifying the pension contributions required.

So my Goldilocks income for HR tax relief on the minimal pension contribution and all income at BR tax is:

£50270 + £3600 = £53,870

NoMore

https://forums.moneysavingexpert.com/discussion/comment/81964670#Comment_81964670

It would also depend on how much taxable savings interest you have, if you want to keep your £1000 savings allowance.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81964670#Comment_81964670

It's more complicated than that, the make up your income (non savings non dividend, savings interest and dividends) is important to understanding what higher rate relief will be due.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81964704#Comment_81964704

So if the top slice of your total taxable income is £2600 of pension drawdown, £500 of savings interest (all covered by the PSA) and £500 of dividends (all covered by the dividend allowance) then your higher rate relief would only be 20% of £2600 because the other £1000 would all have been taxed at 0% but would fall in the higher rate band?

But you would still have got to the basic rate band and have the £1000 PSA wouldn't you?

PKY

https://forums.moneysavingexpert.com/discussion/comment/81964704#Comment_81964704

Now there's the thing. My income sources will be pension drawdown, a small amount of self employment, a rental property income, savings interest, and a GIA producing dividend income and capital gains.

I've recently retired and I'm trying to construct the most tax efficient structure to harvest income from my investments and savings.

https://forums.moneysavingexpert.com/discussion/comment/81964768#Comment_81964768

I understand the order in which income is taxed is non saving income, then savings income followed by dividend income. Capital gains are a separate thing on top of the income taxation?

So the top slice of my taxable income would be my dividend income and I could claim pension tax relief at the higher rate dividend tax of 35.75%?

Does anyone know if my thinking is correct?

DRS1

I think you can ignore capital gains for this.

Dividends will make up the top slice of your income so in theory you could get 35.75% relief (or rather 20% in the pension and an extra 15.75% in your hand) but that would depend on the amount of dividend income you have. The dividend allowance could interfere with the sums. Ideally you would have no dividend income outside an ISA so that the top slice of your income would be the savings interest (especially when the tax rate on that changes). Anyway that is my thinking.

@Dazed_and_C0nfused will hopefully be along to set us straight.