how much to contribute to pension?
nine
Posts: 11 Forumite
Hi - I'm trying to understand how much I should contribute to my pension, so that I minimise the amount of tax I pay.
Salary: £42,600
Bonus: £6,200 (this isn't guaranteed but we almost always got it - payable in January each year)
Medical insurance £1550 (taxable benefit)
At the moment, I'm only contributing £100 per month to a pension plan (and my employer also adds £320 - but from what I understand the employer contribution that doesn't affect my taxes). For these £100 I get an automatic tax relief of 20% I believe.
Two questions really:
Thank you!
Salary: £42,600
Bonus: £6,200 (this isn't guaranteed but we almost always got it - payable in January each year)
Medical insurance £1550 (taxable benefit)
At the moment, I'm only contributing £100 per month to a pension plan (and my employer also adds £320 - but from what I understand the employer contribution that doesn't affect my taxes). For these £100 I get an automatic tax relief of 20% I believe.
Two questions really:
- how much should I pay to the pension plan so that I avoid being considered a higher rate tax payer?
- is there any way to get extra tax relief on the money I contribute to the pension? how would I go about it?
Thank you!
0
Comments
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A few basic questions! How old are you? How much have you already saved in your pension pot(s)? When do you want to retire? How much do you want to retire on??"For every complicated problem, there is always a simple, wrong answer"0
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I'm 43, I only have about £40K in pension pots as I worked in different countries and was careless about it...
I'd like to retire today
but I can't, so the assumption is that I need to work until I can retire... 67 says the calculator.
No idea how much I need when I retire, but want to start increasing my pension contributions as soon as I don't have to pay for after/before school childcare anymore, which is mid next year or sooner... my child is off to secondary school in Sep '19.0 -
Salary isn't relevant for tax purposes it is your taxable pay/salary as will be shown on your P60.
Is this going to be £48,800?
Which country are you resident in for tax purposes?0 -
Dazed_and_confused wrote: »Salary isn't relevant for tax purposes it is your taxable pay/salary as will be shown on your P60.
Is this going to be £48,800?
Which country are you resident in for tax purposes?
Yes that is the amount.
Resident for tax in the UK for the past 7 years, and I don't expect that to change...0 -
UK is no longer an option, it's either Scotland or the rest of the UK (and from April 2019 it will be Scotland, Wales or the rest of the UK).0
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I'm in England so that's rest of the UK 0
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As you are a higher rate taxpayer , basic rate tax relief should be added on by the pension company and then you have to claim back the higher rate element from HMRC. They will send you a tax rebate and/or adjust for it in your tax code.
So for each £100 you contribute , the pension company should add £25 and then you will get another £25 back at a later stage when you claim for it .
The amount you are putting in is a bit on the low side and your current pension pot is very low for your age. As you can see pension contributions are very advantageous for a higher rate taxpayer , so increasing your contributions would be a very good idea all round.0 -
ok so in the current tax year you will be paying tax like this,
£50,350 less Personal Allowance £11,850 = £38,500
£34,500 x 20%
£4,000 x 40%
If the £125 you are paying each month (£1500 gross per year) is in a personal pension/SIPP then this increases your basic rate amount so the end of the calculation would be
£36,000 x 20%
£2,500 x 40%
So paying an additional £2,500 (gross) will mean all tax is payable at 20%.
You get basic rate tax relief added by the pension company and inform HMRC of the pension contributions (making it clear exactly what you mean, gross, net etc) and they will arrange for the additional tax relief due to be allowed. If you do this in the year in question you will get a new tax code and pay a bit less tax each month. If you wait till the year ends and then tell HMRC you will get a refund direct from HMRC. The tax refund is never paid to your pension fund and tax relief for one tax year is never included in the tax code of a different tax year although HMRC may incude an estimate of pension relief in your tax code on the basis you will be paying the same amount the next year.
If you make very large payments (£10k+?) you may need to complete a tax return.0 -
Albermarle wrote: »As you are a higher rate taxpayer , basic rate tax relief should be added on by the pension company and then you have to claim back the higher rate element from HMRC. They will send you a tax rebate and/or adjust for it in your tax code.
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Thanks, how do I claim this extra tax relief? I don't fill out a tax return... and my income has increased only recently, I was always a basic rate taxpayer...0 -
What do you mean by "and my income has increased only recently"??
Is the £42,600 your current salary or the (taxable) salary you will receive in the current tax year?0
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