For the 2019/20 tax year, the 40% tax bracket kicks in at £50k. In simple terms, I'd like to maximise my pension contributions whilst still benefiting from 40% tax relief, as I suspect that this level of generosity won't last for ever.
Let's assume that I earn £60k and have a car with a BIK figure of £10k. Can I pay just under £20k into my pension without dropping back into basic rate tax and only getting 20% relief on my contributions?
I'm aware of the £40k cap to get tax relief on total pension contributions (total of employee and employer), but is there anything else that I'm missing?
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Try popping the figures in to this...
www.thesalarycalculator.co.uk/salary.php
There is a link under tax paid to show the amount of tax paid under each band.
I believe there is an overall lifetime limit of £1,055,000 and I believe that you can carry the unused element of the £40k annual allowance forward from the previous year.
Last edited by: zippy on Sat 6 Apr 19 at 19:43
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As always, proper paid-for advice should be relied upon much more than an anonymous geezer on a forum.
However assuming you have no other income (e.g. rental, untaxed bank interest , pension etc) and no other perks (e.g. healthcare) then I'd think that you take your personal allowance from your gross income (£70000 - £12500 = £57500). Tax is payable on the first £37,500 at 20% then on the remaining £20,000 at 40%.
So you can contribute that £20k to a pension then you would get 40% relief.
To be fair, even if you "only" got a 20% uplift on your contributions it's not too shabby.
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This is what I did for the last three years of my working life . On the advice of my son who is not a financial adviser but who is an FCA.
I stuck every penny I could into my pension even using savings.At the time this was £ 50 k a year to get the benefit of 40% tax relief on the amount of earnings over 50k per annum but even 20% relief is a worthwhile investment.
I believe that the maximum you can now invest per annum is £40k but I am not up to date with the rules so please take advice from a financial adviser. 10 hours of advice at 150 quid an hour gained me over £2000 per annum in pension so a worthwhile excercise.
I cannot believe that it is 5 years since I retired....
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AFAIK the annual limit is still £40k but you can use any allowance unused in the past three years. Lifetime limit on size of pot is mentioned above.
I did the same Helicopter. I was on a good contract for three years, self employed, so I just took the bare minimum out of the company each month ( - I was lucky that SWMBO was earning enough to keep us!) and the rest went into a SIPP. No corp tax was a the bonus, and 25% of it is tax free when I take it out. So tax -efficient.
I'm lucky enough to have been not working for 4 years and SWMBO stopped a year ago, having gone p/t a year earlier. Time is flying past! I'll be old enough for my State pension in about 3 years!
Last edited by: smokie on Sun 7 Apr 19 at 14:35
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I still have the money invested in my SIPP smokie but have elected not to take it yet and I still add a figure of £ 2800 per annum to it which equates to £3500 going in taking account of tax relief each year. This was after advice from my financial adviser. It is a better potential return than any ISA and is the max allowed by HMRC.
Iwill have to take in 5 years when I turn 75, in the meantime I can live quiite comfortably on other pensions and savings. I have no desire to pass on any more money to HMRC than I have to in life or in death and am looking at discretionary trusts , buying a bond to provide income to live on but which will not be counted as part of my estate on my death. My brother has already done this.
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I've got no pension income so I'm existing on savings. Cashed the old money purchase and final salary my pensions in when the ex-employer came up with a stonking offer to buy me out a year or so back. However it was paid into a SIPP just before a quite massive drop in returns on the funds I put it in (under IFA advice!), so it's still worth a little under its original value.
I took some money from the other SIPP last tax year, purely to take advantage of my personal allowance.
Incidentally, due to some fluky investments, my stocks and shares ISA has outgrown my SIPPs many times over. The major "winning" share was being mentioned here regularly some time back, and is a keeper, but I've occasionally done a bit of day trading and had some luck, like last week buying £8k of Debenhams shares at market close one day then selling next lunchtime for £11.4k. There have been a few hiccups along the way but the original £60k (aggregation of other ISAs) is now £140k in about 18 months. Only about 2/3rds is committed long term - the rest sits there most of the time not earning anything.
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wrt adding to my SIPP - presumably I could do this from my ISA, up to the max £2880, and get £720 from the tax man.
But then 75% of that money would be taxable on drawdown wouldn't it? Thus pretty much negating the benefit?
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True there is tax to pay on drawdown but weigh that against the likely income in a SIPP as opposed to an ISA or BS account.
Its all a gamble at the end of the day...
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You took a real risk with Debenhams ...I would not have taken that risk but good luck to you...just be prepared for the times when it will go the other way...share trading is as much a gamble as the Grand National.
As regards the SIPP values falling mine lost £10k a couple of months ago but it is a long term investment that has now picked back up to only £ 4k down on peak value.
Overall the return is good and a much safer investment.
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Yes I understand the risks of "gambling", having done it for many years in many different guises!
My main pensions lost around 10% within about a week of being paid out to me. Still about 3% short on what was transferred in so not the greatest start (poor timing really, a week or so later and it'd have been a different story). And it's in one of the Royal London Governed Portfolio funds, not some fly-by-night outfit.
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Likewise smokie...State Pension for me too in 3 years when I’m 66yo. And a free bus pass.
Perfect timing as I plan to have spent all my small private pension just as I reach 66, currently doing drawdown each tax year using my full personal allowance so paying no tax. No annuity for me....I got a quote and it was peanuts, not enough to keep me in petrol and Jet2.com flights!
Then I’ll downsize property releasing equity to spend willy nilly doing fun stuff over a few years just because I can. Or so I hope!
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40% tax relief on pension contributions - zippy
