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  • FIRST POST
    • Gronson
    • By Gronson 9th Jul 18, 11:17 PM
    • 13Posts
    • 3Thanks
    Gronson
    Pension Input Amount and 60% marginal tax rate
    • #1
    • 9th Jul 18, 11:17 PM
    Pension Input Amount and 60% marginal tax rate 9th Jul 18 at 11:17 PM
    Hello all
    I would be grateful for any help on this one.

    I am in a DB pension scheme which has the option to make additional voluntary contributions as well.

    For the current year, the pension input amount for my DB scheme will be 39,000 to be tested against the annual allowance of 40,000. I have no unused annual allowance brought forward from the 3 previous years.
    My pay after salary sacrifice (cycle to work and pension contributions) will be 105k

    Does it make sense to make AVC contributions of 5k or 6k which will benefit from a marginal tax rate saving of 60% (40% tax and 20% due to loss of personal allowance) even if I have to pay tax on excess pension input allowance at 40% on 4K or 5k? May also have the benefit of taking me out of self assessment...

    Am I missing something?
    Last edited by Gronson; 10-07-2018 at 8:30 AM. Reason: More information added
Page 2
    • zagfles
    • By zagfles 12th Jul 18, 7:54 AM
    • 13,535 Posts
    • 11,493 Thanks
    zagfles
    Thanks to everyone who tried to assist with this. In the end I downloaded some self assessment software which confirmed that the excess pension charge DOES NOT count as taxable income for the purposes of triggering the personal allowance taper. So it does appear that you can make pension contributions which receive tax relief at 60% due to income level between 100-123k and which end up being taxed as excess over the 40k annual allowance at either 40% or 45%
    Originally posted by Gronson
    Really? Is this official HMRC software, as it appears to contradict the HMRC website
    • EdSwippet
    • By EdSwippet 12th Jul 18, 8:48 AM
    • 815 Posts
    • 785 Thanks
    EdSwippet
    ... So it does appear that you can make pension contributions which receive tax relief at 60% due to income level between 100-123k and which end up being taxed as excess over the 40k annual allowance at either 40% or 45%
    Originally posted by Gronson
    As described in this article? I had no idea this wrinkle existed.
    https://www.moneymarketing.co.uk/issues/15-june-2017/37-mark-devlin-turning-tax-trap-tax-relief/
    Last edited by EdSwippet; 12-07-2018 at 8:51 AM.
    • Gronson
    • By Gronson 12th Jul 18, 11:17 AM
    • 13 Posts
    • 3 Thanks
    Gronson
    Article
    Thanks for the link
    That is exactly what I was looking for but good to get it confirmed on the self assessment software
    • Gronson
    • By Gronson 12th Jul 18, 11:19 AM
    • 13 Posts
    • 3 Thanks
    Gronson
    Software
    It is on the list of approved software on the HMRC website

    The link in the reply from Edswippet probably explains it far better than I managed
    • zagfles
    • By zagfles 12th Jul 18, 7:08 PM
    • 13,535 Posts
    • 11,493 Thanks
    zagfles
    It is on the list of approved software on the HMRC website

    The link in the reply from Edswippet probably explains it far better than I managed
    Originally posted by Gronson
    Well that's a strange foible - it does seem to contradict the gov.uk link I posted earlier...tax is stupidly complicated when it could be so much simpler and fairer - if stupid rules weren't put in place mainly for soundbite purposes.
    • Gronson
    • By Gronson 12th Jul 18, 11:39 PM
    • 13 Posts
    • 3 Thanks
    Gronson
    Well that's a strange foible - it does seem to contradict the gov.uk link I posted earlier...tax is stupidly complicated when it could be so much simpler and fairer - if stupid rules weren't put in place mainly for soundbite purposes.
    Originally posted by zagfles
    But it keeps forums such as this in business
    • ex-pat scot
    • By ex-pat scot 13th Jul 18, 10:17 AM
    • 288 Posts
    • 350 Thanks
    ex-pat scot
    Thanks to everyone who tried to assist with this. In the end I downloaded some self assessment software which confirmed that the excess pension charge DOES NOT count as taxable income for the purposes of triggering the personal allowance taper. So it does appear that you can make pension contributions which receive tax relief at 60% due to income level between 100-123k and which end up being taxed as excess over the 40k annual allowance at either 40% or 45%
    Originally posted by Gronson

    It's a "feature" of the marginal 62% tax rate incurred between 100,000 and 123,000.
    It's a central part of any tax / pensions strategy for anyone in this income band.
    Frankly, there are few areas where you can do tax planning if an employee, and pensions, gift aid and CycleScheme are the main ones. The alternative, which many of my peers follow, is to reduce the hours worked so as to avoid entirely the 62% band. Their (not unreasonable) view is that they don't see the point in working additional hours but losing 2/3 to tax.
    • bowlhead99
    • By bowlhead99 13th Jul 18, 11:26 AM
    • 8,295 Posts
    • 15,184 Thanks
    bowlhead99
    The alternative, which many of my peers follow, is to reduce the hours worked so as to avoid entirely the 62% band. Their (not unreasonable) view is that they don't see the point in working additional hours but losing 2/3 to tax.
    Originally posted by ex-pat scot
    The problem with that (though I assume many on much lower pay would class it as a 'nice problem to have') is that a good proportion of the jobs which pay say, 105-125k a year and cause you to lose your personal allowance are simply not available as an equivalent job for four days a week for 80% of the pay (i.e. 84-100k being purely 40% bracket).

    Generally people clocking in and out at the factory or office gate and getting paid by the hour with some voluntary overtime - which they could choose to cut down and avoid earning the last few thousand pounds of income - don't get to six figure wages. Many of those that get there tend to be those on fixed salaries where you get paid an amount per month for your professional output which could sometimes be 40, 45, 50, 60+ hours of work spread over the week from time to time including perhaps some evenings or weekends as the job demands.

    Some of those people going to their employers and asking for an arrangement where they only put in 80% of the effort or effectively do 0.8 of the job during Monday to Thursday with a nice long weekend each week, and make the employer recruit someone for the other 0.2 and deal with the inefficiencies of that, will find they get turned down and it would be a career-limiting move.

    It can of course work better where you are independent contractor, from, owner of own business etc and have the luxury of turning away clients or extra work once you reach your target income, and perhaps if you're reaching these high salaries when in the twilight of your career it might be easier to "slack off" without consequences for career progression or choice of future opportunities.
    • kidmugsy
    • By kidmugsy 13th Jul 18, 11:39 AM
    • 12,074 Posts
    • 8,523 Thanks
    kidmugsy
    I'll bet there are plenty of doctors aiming to earn 99k p.a.
    Free the dunston one next time too.
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