If a person is lucky enough to earn over 100k I understand that their personal allownace reduces by £1 for every £2 earned over the threshold.
To avoid it, can they simply pay any overs into a SIPP? outside of monthly employee's and employer's stakeholder pension contributions?
EG, they are set to earn 125k by end of march, can they put 25k into a SIPP, tell HMRC and have their allowance re-adjusted?
Yes in short. Pension contributions reduce your taxable income, so if you contribute to bring you back under the threshold then the tapering personal allowance can be reclaimed.Originally Posted by Linocut
Makes it a no brainer really if you can afford the contributions, as in real terms you'll save 60% income tax (+NI) on that £25k.
It's the mechanics of it that I'm not sure of, how a person goes about "proving" it. Do they just send proof to HMRC as if they were claiming higher rate tax relief on a lump sum?
I don't think they can make any changes to their stakeholder pension contributions before year end and they would need to be quite large anyway to get under the 100k figure
Paying into a SIPP is net of tax so you would need to submit a tax return.
If you have a workplace pension it would be easier to organise a higher contribution to reduce your tax.
Ah, I can't say with confidence on the mechanics of notifying HMRC (personally I've only contributed via my employer) so I'll leave it to someone more knowledgeable.
Grateful for your reply, thank you.
You fill in a tax return every year however if its a workplace pension and the contributions are the same every month then a call to the tax office will help them calibrate and they'll adjust tax in the same tax year.
To a certain extent you can do this online by stating your anticipated earnings for the year, taxable benefits and pension contributions.
BTW there's no benefit to paying enough tax to put you below the tapering threshold, it is just beneficial to use all of that effective 60% allowance by bringing net pay after pension contributions back to £100k
You pay £20,833 into your pension. Then £4,167 will be reclaimed by the provider to make a £25,000 pension contribution. Submit a tax return to reclaim the rest of the tax back.
Thanks Both...
You can only save NI the pension contribution is made via salary sacrifice.
For completeness, worth checking you have headroom to pay the additional contributions.
Next year get an EV if you have a company salary sacrifice scheme, as the 62% saving on lease payments and 2% BIK make it a no brainer.
Also buy a £5k electric bike on cyclescheme if that’s your bag, as you’ll get similar savings.
Will work pensions tend to allow you to make lump sum payments to take you below the £100k income? Presumably this needs to be done prior to April 5th? And it would be handy to review your P60 first?
Some will. Ask the provider like Aegeon, Aviva etc. If not, set up a private pension and transfer at a later date
P60 is useless as it doesn’t get issued until after April 5th and into the new tax year.
Your end of March payslip should have all the information you need for the tax year and the running total of taxable salary, tax paid etc.
A debit card payment up until CoB April 5th will be fine.
So if you don’t have the option of paying more into a workplace pension and choose to go the SIPP route, to bring you below the £100k threshold, is there a way to do this in advance to avoid paying higher income tax (at the over £100k level) or is it a case of paying and claiming back in a tax return later down the line?
HMRC will not immediately know the you have paid a lump sum into a SIPP, and cannot adjust you tax so late in a tax year.
Simply set up a SIPP and make a debit card payment for the net amount. Your pension provider will gross it up by 20%.
Any remaining tax that has been overpaid and now owed to you will claimed via a tax return. HMRC then pay the money owed to you by bank transfer about 3 weeks later, or that is my experience when I do my tax return in late April.
Don’t forget the taper relief on the pension. The amount you can pay into your pension drops off above a certain thresholds down to £4K a year.
Last edited by joe narvey; 8th February 2024 at 11:36.
Here is a worked example which may help.
You earn £124k in the 2023-24 tax year and have paid the full £41,832 income tax.
You pay £20k into your pension on April 4th by direct debit and the pension provider grosses that up to £24k
Your income tax liability is only on £100k earning, so £27,432.
You are owned the tax difference by the tax man of £14,400, but HMRC have already grossed your pension up by £4K, so they now owe you £10,400.
£10,400 can be reclaimed by filling in your tax return and completing the box which states if you have made any pension payments which didn’t come directly out of salary.
So the tax man returned £10,400 too you in cash, and added £4K into your pension. You received the full £14,400 tax relief.
Last edited by noTAGlove; 8th February 2024 at 08:38.
That’s very useful…. Thank you
Don't think that's quite right. If you paid £20k into a SIPP, the Govt add £5k to make the gross £25k (with 20% tax relief being £5k).
https://www.gov.uk/tax-on-your-private-pension
The LITRG site has lots of tax content, often in simpler terms than the gov.uk advice https://www.litrg.org.uk/pensions/pa...-contributions
Last edited by deepreddave; 8th February 2024 at 09:40.
Nope.
£20k + 20% = £24k and similarly £20,833 + 20% = £25k.
You divide the gross amount by 1.2 to get net.
Last edited by noTAGlove; 8th February 2024 at 09:46.
Tax relief is on the gross contribution. The Govt example for a non-tax payer shows a net payment of £2880 results in a gross contribution of £3600. AJ Bell example is you pay £800 and the Govt add £200 so a gross of £1000.
https://www.ajbell.co.uk/pensions/sipp-allowances
Last edited by deepreddave; 8th February 2024 at 09:56.
Much apols. You are correct. You divide by 1.25. My mistake.
In the case I was using for an example it’s because they got an unexpected bonus of around a months pay this tax year which will just push them over but the revenue are projecting next years figure including perks at 109k.
So I think this year a one off payment into their sipp will do the trick and next year increase employees contribution and discuss with hmrc to adjust tax code.
The specifics of the higher rate relief aren’t that much of an issue it’s the loss of personal allowance that would add around 8-9k to their next years tax.
Sent from my iPhone using Tapatalk
Refreshing in this day & age
You need to give consideration to this as well
https://www.gov.uk/tax-on-your-priva...nual-allowance
Wouldn't it be nicer to just pay the tax owed as a thank you to the society that has allowed you the opportunity to earn so much (compared to the national average earnings)?
That way you would live in a fairer and more content environment. I remember reading that the Beatles were paying 97% tax in the 1960s!! And also hearing John cleese saying he was working for the taxman until midday on Friday. But, that he still enjoyed a high standard of living...
Everyone contributing in this thread here is paying the tax owed. No one is talking about not paying what is owed
That is for the BP, and there was a recent thread on this in relation to Scotland.
But when you have the Prime Minister paying an effective rate of 23% tax on his multi million pound income and 62% and 69% marginal income tax rates in England/Wales and Scotland respectively for the rest of PAYE, it kind of sticks in the craw.
Anyway back to pension contributions.
I think this is a comment better aimed at the Michelle Mones and other government parasites rather than individual taxpayers.
Sent from my iPhone using Tapatalk
It wasn't aimed at anyone in particular. Just a comment that our society enables people to live in peace and harmony'ish and also the ability to earn and have a very good life. And that those who are enabled to earn more than the average should be thankful for the society that allows them the ability to do that. I suppose thought that it Is a political statement so should be in the BP. Problem is the BP is Not a place for discussion and debate as those that frequent it know.
And I certainly agree with the likes of Michelle Mone and others. I would class them as criminals though...
Yes, of course, you are right and my comment in no way suggests otherwise. Clumsy wording of me
if someone has spent years building up their career and their pension is insufficient due to low contributions in the past. They may then benefit from a bonus, pay rise or similar that affords them the chance to utilise widely known and completely legitimate tax reliefs to improve or catch up their potential pension income.
they are still paying 40% on £50k per annum, just retaining their personal allowance by keeping their income below £100k. if you researched and understood the removal of the personal allowance you may be a little more understanding of this particular tax relief given the rather unpleasant nature of the indirect tax charge due to the £100k + rule.
similar rules apply to child allowance for people on income over £50k, there are some very sneaky and unfair tax rules to catch out people that don't actually earn fortunes,
Changes for HICBC under Cameron were another ill thought out change, see TPA's great for marginal rates of tax below, which yield even higher rates if you take into account multiple children, child benefit ceilings and student loan repayments. The tax system really needs complete reform....
It’s the only way to not get shafted, assuming you are able to live below the threshold.
My bonus goes into my pension, but I have to assign a percentage or maximum amount before I know what it is myself. Nobody can explain why I have to do it blind apart from ‘tax reasons’ which doesn’t really answer the question.
Apologies if this is in the wrong place, and I don’t know covet anyone to disclose their income or tax band.
To what extent is the inequity in taxation perpetuated by the wealthy introducing new inequities and wheezes to compensate for the percentage tax take on the wealthy. Note the reference to percentage not a figure.
How do we expect the wealthy to respond to zero savings and a capped pension contributions and limits?
The major annoyance I have is the fact that the rules are changed to suit what they want
Taxation is meant to be on an individual basis yet the loss of child benefit and childcare hours are based on the household
This is completely unfair - either make it individual for everything or household for everything.
I’m in a situation I’m sure others are - we have one high earner and one low earner.
So we lose all of the child benefit, childcare hours and tax free childcare whereas a household with a more even split but actually earning more money would lose child benefit but not the other two
I know we are fortunate to have a high earner but we are not wealthy. Our aim is to push through this inequity for another few years until both our kids are at school full time and hopefully earnings for both of us will increase a bit
When you see that our Prime Minister pays less than 25% tax on an income of £2.2m (a prominent example of someone well off whose tax & income was in the news last month, not selected for political reasons) then I think that all of the folks relying on a salary to live on would be sensible to use all available tax breaks.
I always thought that flat tax rate, with a tax free allowance to allow most folk to cover living costs, and no tax breaks whatsoever, would be reasonably fair and should be easy to administer - I don't doubt the wealthy would find a way to minimise their tax exposure even then though.
I’m quite happy to pay more tax, but I’d rather it was fair…. Eroding your personal allowance at a certain point doesn’t seem reasonable…. Just bring in a different tax band and by all means tax me more, but make it more reasonable….
Ps. Don’t fine me £4.5k and not notify your when you didn’t realise you had to do a tax return
I also find this unfair - as you say why get rid of the personal allowance when you are already paying more tax due to the higher earnings including the 45% tax band coming in. If the loss of personal allowance was stopped there may actually be more tax revenue generated because there would not be any incentive to salary sacrifice to below 100k especially for those without children
When the PM and probably a large part of Tory MPs pay much lower corporation/dividend tax you can see why PAYE is not a priority.
The middle classes paying 62% (70% in Scotland) marginal tax rates while the truly wealthy are paying less than half of that.
With income tax and NI, lower earning basic rate tax payers are paying a higher marginal tax rate than the PM.
What I find unfair about UK tax is it is based on the individual and not the family. IMHO the overall housecome income is what should be taxed. As it stands you can have one person earning £120k and the other a stay at home parent and they'll pay much more tax than 2 individuals earning £60k each. That makes no sense.
Completely with you here, wife & I would rather have that vs what we do. Oh well, just means can retire sooner I guess as long as annual pension contributions don’t go down again.
Sent from my iPad using Tapatalk
Unfortunately at the minute I cannot take the hit to take home to not be impacted - that may change once kids don’t need childcare etc but will weigh it up at the time
Still easier than most, but I do feel the pain in not having the choice. We have no kids, so that aspect is a little easier for us, aside from people asking why we didn’t want them…
Visited a good friend last weekend who has been through a messy financial divorce etc and very humbling what you sometimes take for granted vs the choices everyone has to make.
Sent from my iPad using Tapatalk
Posting Permissions
Reply With Quote
