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?

[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......

[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.