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  • FIRST POST
    • Escapar2020
    • By Escapar2020 20th Oct 19, 4:16 PM
    • 100Posts
    • 172Thanks
    Escapar2020
    High rate tax and pensions
    • #1
    • 20th Oct 19, 4:16 PM
    High rate tax and pensions 20th Oct 19 at 4:16 PM
    Hi all
    Ive just had a tax refund, so downloaded the HMRC app in order to claim it. I've been exploring the app and came across my tax estimate for this Year:
    Tax-free salary 12,500
    Basic rate salary 37,500 tax =7,500
    Higher rate salary 6,622 tax =2,648
    I've thought about making extra pension contributions before. Am I right to think that putting an extra 7k into my pension would take me out of the higher rate tax band? If so, would it be too late to make a lump sum contribution this year? I'm in the LGPS if it makes a difference.
    Is there anything else I should consider?
    Thanks
    Escapar2020
Page 1
    • Linton
    • By Linton 20th Oct 19, 4:52 PM
    • 11,396 Posts
    • 11,829 Thanks
    Linton
    • #2
    • 20th Oct 19, 4:52 PM
    • #2
    • 20th Oct 19, 4:52 PM
    I assume the figures given already include a deduction for your current pension contributions for the year. If so you are correct, simply put the higher rate tranche into a pension. It doesnt matter when in the tax year you make this extra contribution - tax is based on the totals over the year.



    If you put it into LGPS everything should be OK since LGPS contrributions are deducted before calculating tax. However if for some reason you have to put after-tax money into a private pension you should actually pay in 80% of the amount since HMRC will add the extra 20% basic rate tax refund directly into your pension.
    • xylophone
    • By xylophone 20th Oct 19, 6:10 PM
    • 31,626 Posts
    • 19,611 Thanks
    xylophone
    • #3
    • 20th Oct 19, 6:10 PM
    • #3
    • 20th Oct 19, 6:10 PM
    If you put it into LGPS everything should be OK since LGPS contrributions are deducted before calculating tax.
    He should be careful about lump sum to APC.


    https://www.lgpsmember.org/arm/already-member-extra.php

    http://lgpslibrary.org/assets/gas/ew/AVCFAQ.pdf

    https://www.lgpsmember.org/more/contscalc.php
    Last edited by xylophone; 21-10-2019 at 6:42 PM. Reason: add quotes
    • Escapar2020
    • By Escapar2020 22nd Oct 19, 7:48 AM
    • 100 Posts
    • 172 Thanks
    Escapar2020
    • #4
    • 22nd Oct 19, 7:48 AM
    • #4
    • 22nd Oct 19, 7:48 AM
    I assume the figures given already include a deduction for your current pension contributions for the year. If so you are correct, simply put the higher rate tranche into a pension. It doesnt matter when in the tax year you make this extra contribution - tax is based on the totals over the year.



    If you put it into LGPS everything should be OK since LGPS contrributions are deducted before calculating tax. However if for some reason you have to put after-tax money into a private pension you should actually pay in 80% of the amount since HMRC will add the extra 20% basic rate tax refund directly into your pension.
    Originally posted by Linton
    Yes, my figures already include existing pension deductions. So, if I put 5600 into a private pension, the tax man would add another 1400, and I'd essentially be paying 20% tax on my salary overall?

    It seems straight forward, so just checking I've got it right!?
    • Escapar2020
    • By Escapar2020 22nd Oct 19, 7:53 AM
    • 100 Posts
    • 172 Thanks
    Escapar2020
    • #5
    • 22nd Oct 19, 7:53 AM
    • #5
    • 22nd Oct 19, 7:53 AM
    I see that there's a 7k limit to APCs, is that a total or annual limit? Would I be better to start a second private pension? I'm 46 now and would hope to start drawing down my pension from 55 (or earlier!)
    • Triumph13
    • By Triumph13 22nd Oct 19, 7:55 AM
    • 1,595 Posts
    • 2,248 Thanks
    Triumph13
    • #6
    • 22nd Oct 19, 7:55 AM
    • #6
    • 22nd Oct 19, 7:55 AM
    If you put 5,600 into a private pension then HMRC will add 1,400 to the pension. You can then phone up HMRC and ask them to give you back the other 20% - so if you had 7k of earnings over 50k then ypu'd get a cheque for 1,400. You don't quite have 7k in the HRT band so you would probably only want to contribute 6,622 x 80% in the first place.
    • AlanP
    • By AlanP 22nd Oct 19, 12:32 PM
    • 1,715 Posts
    • 1,368 Thanks
    AlanP
    • #7
    • 22nd Oct 19, 12:32 PM
    • #7
    • 22nd Oct 19, 12:32 PM
    Take a look at LGPS AVC option as an alternative to the APC.

    Can be taken as the tax free part of the overall LGPS pension so very tax beneficial.
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