Are there any advantages to paying higher rate tax?

[Mr Noble]

Might seem an odd question, but I've been thinking about it recently.

Many Ltd "company directors" will pay themselves a small salary in order to trigger NI and top up their income with dividends and maybe also have tax to pay on rental income or other personal gains.

Assuming that many people work the numbers to bring their total incomes in just shy of the 40% band, I was wondering if there might be any advantages to just tipping into 40% by a few hundred quid.

Would it mean that you can then claim 40% pension top-ups? Or can you only claim up to the same amount as you've paid in tax?

Are there any other benefits to being a higher rate tax payer, like cheaper insurance or better deals on mortgages etc?

Or are 'we' better off trying to remain in the lower rate category?

[PurpleMoonlight]

You have more dosh in your pocket to spend on enjoying your life.

[Jasandjules]

Many couples will also "employ" the other half in the business to gain the lower rates of tax for higher values i.e. the couple earn more than a single higher rate tax payer whilst not paying the higher rate of tax....

[blippo1984]

If you gift aid you can gain some extra relief if you are a high rate tax payer - but only because you paid more tax in the first place.

[blippo1984]

If you gift aid you can gain some extra relief if you are a high rate tax payer - but only because you paid more tax in the first place.

[Eric Mc]

Or make personal pension contributions.

[Mr Noble]

Eric Mc said:

Or make personal pension contributions.

I think my question is, could you claim 40% relief on all of your pension contributions even if you only paid 40% tax on £1000 worth of income over the 20% threshold?


I'm guessing that HMRC cap the amount of 40% pension top you can claim at the same amount of 40% tax you paid.......or is this a loophole?



No doubt I'm missing a glaringly obvious point here......

[edc]

If I am understanding it correctly then your pension contribution will have to be very substantial to negate the basic rate tax you pay on the salary that gets you to the 40% threshold.

[TheHound]

PurpleMoonlight said:

You have more dosh in your pocket to spend on enjoying your life.

This

[bogie]

blippo1984 said:

If you gift aid you can gain some extra relief if you are a high rate tax payer - but only because you paid more tax in the first place.

yes...gift aid is just like diverting some of your tax to good causes you actually care about

[Welshbeef]

Mr Noble said:

I think my question is, could you claim 40% relief on all of your pension contributions even if you only paid 40% tax on £1000 worth of income over the 20% threshold?


I'm guessing that HMRC cap the amount of 40% pension top you can claim at the same amount of 40% tax you paid.......or is this a loophole?



No doubt I'm missing a glaringly obvious point here......

Yes even if only 1pence into the rate.

Max it while you can as this is sure to go or be reduced at some point. That said it really encourages people to save for retirement.

[red_slr]

The only draw back I can find on day to day stuff is mortgages.

[EddieSteadyGo]

Mr Noble said:

I'm guessing that HMRC cap the amount of 40% pension top you can claim at the same amount of 40% tax you paid.......or is this a loophole?

There isn't a loophole - I think you need to work through an example and you'll see you don't get a bigger contribution into your pension via tax relief than you would otherwise have paid in income tax.

I'm getting the impression you are wondering if you made say £10,000 of pension contributions, and you were £1 into the 40% tax bracket, would you get 40% tax relief on the full pension contribution - the answer is no I'm afraid.

[schmunk]

Welshbeef said:

Mr Noble said:

could you claim 40% relief on all of your pension contributions even if you only paid 40% tax on £1000 worth of income over the 20% threshold?

Yes even if only 1pence into the rate.

[Mr Noble]

EddieSteadyGo said:

Mr Noble said:

I'm guessing that HMRC cap the amount of 40% pension top you can claim at the same amount of 40% tax you paid.......or is this a loophole?

There isn't a loophole - I think you need to work through an example and you'll see you don't get a bigger contribution into your pension via tax relief than you would otherwise have paid in income tax.

I'm getting the impression you are wondering if you made say £10,000 of pension contributions, and you were £1 into the 40% tax bracket, would you get 40% tax relief on the full pension contribution - the answer is no I'm afraid.

I think that is what I was thinking, yes. It seems logical in my head, but as you say, I think if you do work through an example, it wouldn't make any difference to the amount you claimed back in pension relief.

Oh well, it was an interesting thought.

[blank]

Welshbeef said:

Mr Noble said:

I think my question is, could you claim 40% relief on all of your pension contributions even if you only paid 40% tax on £1000 worth of income over the 20% threshold?


I'm guessing that HMRC cap the amount of 40% pension top you can claim at the same amount of 40% tax you paid.......or is this a loophole?



No doubt I'm missing a glaringly obvious point here......

Yes even if only 1pence into the rate.

Max it while you can as this is sure to go or be reduced at some point. That said it really encourages people to save for retirement.

Errr are you sure on that?

I thought it was split as you crossed the threshold.

I.e. say you were £1000 over the 40% limit but had £2000 of deductions (pensions, business expenses, whatever) you'd get back 40% of £1000 and 20% of the other £1000?

[GT03ROB]

Welshbeef said:

Mr Noble said:

I think my question is, could you claim 40% relief on all of your pension contributions even if you only paid 40% tax on £1000 worth of income over the 20% threshold?


I'm guessing that HMRC cap the amount of 40% pension top you can claim at the same amount of 40% tax you paid.......or is this a loophole?



No doubt I'm missing a glaringly obvious point here......

Yes even if only 1pence into the rate.

Max it while you can as this is sure to go or be reduced at some point. That said it really encourages people to save for retirement.

Welsh.......... what are you on today..... whatever it is I'll have some of it.

[Welshbeef]

Whoops sorry hands up school not error.
I've always been way beyond the threshold once in it with respect to pension contributions so yep.


Wine time now .

[blindspot]

Better schools, hospitals, roads, other infrastructure. Well paid, motivated and valued nurses, doctors, police service, fire bde, military. Investment in the arts, sport and loans for small business.

Quite a lot of advantages really!

[schmunk]

blindspot said:

Better schools, hospitals, roads, other infrastructure. Well paid, motivated and valued nurses, doctors, police service, fire bde, military. Investment in the arts, sport and loans for small business.

Quite a lot of advantages really!

Little bit of politics there, ladies and gentlemen...