Fiscal drag and trying to reduce tax liability

radford

70 years old - looking at 25/26 Tax

Pension income (including SP) = £53220

Untaxed savings interest = £3600

Annual charity contributions (Gift Aid)  £600

a)  Am I able to pay into a new pension scheme in order to get back down to Basic rate taxpayer status? If so, how much?

Or 

b). How much would I have to GiftAid to Charity to get down to BR again?

Can either of these be backdated to previous tax years?

Or any other suggestions welcome

And yes, I’m now starting to move the interest bearing accounts into ISAs asap

DRS1

a) Yes and No. Yes you can contribute but No you can't contribute enough to get you to basic rate. As you have no earned income or self employment profit you are limited to a gross contribution of £3600 . You will get higher rate tax relief on that but it won't get you to the £1000 PSA which I guess is what you are looking for.

b) you can gift aid whatever you want as long as you have paid the income tax to cover the tax relief.

You can't backdate pension contributions. You can backdate gift aid.

You have total income of 56820. the higher rate threshold is 50270 and your 600 gift aid contributions get that up to 50870 so you need an extra 5950 of contributions (could be 3600 gross pension (2880 net actual payment) and the rest gift aid).

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82029304#Comment_82029304

I think you've overlooked a crucial element of the op.

https://forums.moneysavingexpert.com/discussion/6671844/fiscal-drag-and-trying-to-reduce-tax-liability

Pension contributions won't work as you can only get relief for the tax year you make the contribution in.

Gift Aid payments can be backdated but unless you increase the donations you are going to save tax in one year and miss our on the later year i.e. no overall benefit.

radford

Thank you both for your clarity.

Re a) yes you are correct - I was hoping to get down to the £1000 PSA.

Re b) Backdating Gift Aid - how would I actually make a donation now and have it treated as last financial year?

Think I'm just going to have to accept that the current tax bill is my penalty for not getting the savings into ISAs quickly enough!

An extra - re my current GiftAid donations - because I am HR, now and going forward, do I get the HR tax back on those contributions - and if so is it automatic or do I have to ask for it?

Thank you again

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82029345#Comment_82029345

Do you normally have to file a Self Assessment return for any reason?

radford

No I was taken out of SA about 8 years ago as there was no longer anything exciting about my taxes (ceased self employment a few years prior, and only about half the pension income at that time).

DRS1

Sorry I have to remind myself we are now in 26/7!

There is a page here about claiming for gift aid. It is a shame you don't do self assessment as it is just a matter of filling in the right box. Contact HMRC could spell a long call.

Tax relief when you donate to a charity: Gift Aid - GOV.UK

radford

Thank you both, and for the link. Think it's time I review and increase my regular charity donations and make that dreaded phone call to HMRC!

fizio

Can someone explain what is the actual value of getting to just below the HRT rate - as any extra income from most sources will simply take you over again. I often hear that people want to stay below the threshold but not sure what they are gaining versus paying a nominal amount of tax at 40% on going a little over?

flaneurs_lobster

https://forums.moneysavingexpert.com/discussion/comment/82033665#Comment_82033665

The main consequence of being a higher-rate tax payer is (natch) paying tax at 40% on that portion over the threshold. Other consequences of note are reductions in the amount of allowance that is allowed for interest and/or dividend income and an effect on child benefits.

BikingBud

While younger and working you might need to earn as much as possible to cover outgoings but once you have other options you might consider that giving away 40% of your free time is not worth it to you.