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    • nine
    • By nine 14th Sep 18, 4:22 PM
    • 11Posts
    • 0Thanks
    nine
    how much to contribute to pension?
    • #1
    • 14th Sep 18, 4:22 PM
    how much to contribute to pension? 14th Sep 18 at 4:22 PM
    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:
    1. how much should I pay to the pension plan so that I avoid being considered a higher rate tax payer?
    2. 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!
    Last edited by nine; 14-09-2018 at 4:55 PM.
Page 1
    • k6chris
    • By k6chris 14th Sep 18, 4:31 PM
    • 259 Posts
    • 458 Thanks
    k6chris
    • #2
    • 14th Sep 18, 4:31 PM
    • #2
    • 14th Sep 18, 4:31 PM
    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??
    EatingSoup
    • nine
    • By nine 14th Sep 18, 4:42 PM
    • 11 Posts
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    nine
    • #3
    • 14th Sep 18, 4:42 PM
    • #3
    • 14th Sep 18, 4:42 PM
    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.
    • Dazed and confused
    • By Dazed and confused 14th Sep 18, 5:04 PM
    • 2,929 Posts
    • 1,426 Thanks
    Dazed and confused
    • #4
    • 14th Sep 18, 5:04 PM
    • #4
    • 14th Sep 18, 5:04 PM
    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?
    • nine
    • By nine 14th Sep 18, 5:07 PM
    • 11 Posts
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    nine
    • #5
    • 14th Sep 18, 5:07 PM
    • #5
    • 14th Sep 18, 5:07 PM
    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?
    Originally posted by Dazed and confused
    Yes that is the amount.

    Resident for tax in the UK for the past 7 years, and I don't expect that to change...
    • Dazed and confused
    • By Dazed and confused 14th Sep 18, 5:11 PM
    • 2,929 Posts
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    Dazed and confused
    • #6
    • 14th Sep 18, 5:11 PM
    • #6
    • 14th Sep 18, 5:11 PM
    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).
    • nine
    • By nine 14th Sep 18, 5:15 PM
    • 11 Posts
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    nine
    • #7
    • 14th Sep 18, 5:15 PM
    • #7
    • 14th Sep 18, 5:15 PM
    I'm in England so that's rest of the UK
    • Albermarle
    • By Albermarle 14th Sep 18, 5:31 PM
    • 48 Posts
    • 17 Thanks
    Albermarle
    • #8
    • 14th Sep 18, 5:31 PM
    • #8
    • 14th Sep 18, 5:31 PM
    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.
    • Dazed and confused
    • By Dazed and confused 14th Sep 18, 5:35 PM
    • 2,929 Posts
    • 1,426 Thanks
    Dazed and confused
    • #9
    • 14th Sep 18, 5:35 PM
    • #9
    • 14th Sep 18, 5:35 PM
    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.
    • nine
    • By nine 14th Sep 18, 5:38 PM
    • 11 Posts
    • 0 Thanks
    nine
    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.
    .
    Originally posted by Albermarle
    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...
    • Dazed and confused
    • By Dazed and confused 14th Sep 18, 5:45 PM
    • 2,929 Posts
    • 1,426 Thanks
    Dazed and confused
    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?
    • Spreadsheetman
    • By Spreadsheetman 14th Sep 18, 5:57 PM
    • 132 Posts
    • 115 Thanks
    Spreadsheetman
    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...
    Originally posted by nine
    I think you will probably have to ask HMRC to request you complete a tax return to get the higher rate relief.


    I'd say for starters you ought to increase your contributions to avoid higher-rate tax and also chuck your bonus in to the pension. That would increase the total contribution to the current 5340 plus 2.5k plus 6.2k, so 14k. That's about 29% instead of the current 11%, a much healthier contribution at 43.
    • lulabelle1
    • By lulabelle1 14th Sep 18, 6:12 PM
    • 2,601 Posts
    • 16,821 Thanks
    lulabelle1
    Presumably if the pension contributions are going in to the company pension, then they are deducted at source, salary reduced accordingly and therefore no need to claim back any kind of tax relief from HMRC as you wont have paid any tax on it anyway? Or, is it a personal pension arranged independently of your employer?
    • k6chris
    • By k6chris 14th Sep 18, 6:13 PM
    • 259 Posts
    • 458 Thanks
    k6chris
    I'd say for starters you ought to increase your contributions to avoid higher-rate tax and also chuck your bonus in to the pension. That would increase the total contribution to the current 5340 plus 2.5k plus 6.2k, so 14k. That's about 29% instead of the current 11%, a much healthier contribution at 43.
    Originally posted by Spreadsheetman

    ..and continue to try and contribute 29%+ of your income each year, maximising tax relief and what your employeer will contribute. What is your current pension invested in??
    EatingSoup
    • nine
    • By nine 14th Sep 18, 6:21 PM
    • 11 Posts
    • 0 Thanks
    nine
    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.
    Originally posted by Dazed and confused
    Thanks a lot - I need to sit down with this message and try to understand it!

    So I just call HMRC to let them know about my own pension contributions of 100 per month? (yes, 25 gets added to it - I can see it all in my Aviva account...)

    I guess I can do that for 2017/2018 as well....
    • nine
    • By nine 14th Sep 18, 6:29 PM
    • 11 Posts
    • 0 Thanks
    nine
    I think you will probably have to ask HMRC to request you complete a tax return to get the higher rate relief.

    I'd say for starters you ought to increase your contributions to avoid higher-rate tax and also chuck your bonus in to the pension. That would increase the total contribution to the current 5340 plus 2.5k plus 6.2k, so 14k. That's about 29% instead of the current 11%, a much healthier contribution at 43.
    Originally posted by Spreadsheetman
    Er... I cannot contribute 29%... I'm a single parent and up until now paying hefty after/before school childcare, still paying it this school year, then it will stop.

    My aim is to contribute 7% to pension, employer does 8%, so 15% total. I wish I could do more but won't happen before my child leaves school...

    to clarify income:

    2017/2018
    P60 44200
    health insurance taxable benefit of 1550.

    expected 2018/2019:
    44800 on p60
    plus the 1550 health insurance
    • Albermarle
    • By Albermarle 14th Sep 18, 6:37 PM
    • 48 Posts
    • 17 Thanks
    Albermarle
    Presumably if the pension contributions are going in to the company pension, then they are deducted at source, salary reduced accordingly and therefore no need to claim back any kind of tax relief from HMRC as you wont have paid any tax on it anyway? Or, is it a personal pension arranged independently of your employer?
    Originally posted by lulabelle1
    This depends on how the employer makes the deductions for the employees contribution.
    If the deduction is made after tax ( quite common also with company pensions ) then the pension company adds the basic rate relief and the employee claims back the higher rate relief .
    Only some companies deduct before tax.
    • nine
    • By nine 14th Sep 18, 6:38 PM
    • 11 Posts
    • 0 Thanks
    nine
    So the company pension is with Aviva. My employer contributes 320, I add 100, and 25 gets added for tax relief - but I read somewhere that I should be able to claim extra 20% tax relief as a higher tax earner... just was wondering if that's possible without having to complete a tax return.
    • Albermarle
    • By Albermarle 14th Sep 18, 6:39 PM
    • 48 Posts
    • 17 Thanks
    Albermarle
    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...
    Originally posted by nine
    You can just call HMRC, probably simpler if you wait until the end of the tax year.
    https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
    • Dazed and confused
    • By Dazed and confused 14th Sep 18, 6:41 PM
    • 2,929 Posts
    • 1,426 Thanks
    Dazed and confused
    For last year it looks as though you will have paid 40% tax on 750 so your pension contribution (assuming you paid at least 750 gross) will allow this 750 to be taxed at 20% instead of 40% potentially saving you 150.

    There should be no need to file a return for this, just tell HMRC about the pension payments in 2017:18 and they will send you a calculation and refund of any tax overpaid last year.

    As your latest post has dropped your 2018:19 income by 4k you won't be paying any 40% tax in the current tax year.
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