Discussion
Background is I'm looking for options to reduce taxable earnings to avoid any loss of my personal allowance in this current tax year.
I understand additional pension contributions are a good way to achieve this by reducing net taxable salary, but I don't think I can do this though payroll now in current tax year (no more payroll in this tax year), and my employer run pension does not seem to allow me to make direct personal contributions (e.g by writing them a cheque from existing taxed salary).
So, the question is, can I start a new / separate personal pension alongside my existing employer pension? , and if so can I check my understanding of the approach / calculations?
For example (values are simplified here to test my thinking), have I got this right ??
If I want to reduce my taxable pay by £10k, then I believe I could open a personal pension with a cheque for £8k. What I have read says a pension provider will claim back the 20% standard tax relief and put that into the new person pension, meaning the pension starts with £10k in it.
Then I claim tax relief for the other 20% , to end up with 40% tax relief on the pension contributions, when I do my self assessment. Net is I expect to then say I have paid £6k but get £10k in to the new personal pension.
Then when I do my my self assessment will that recognise that there was a £10k contribution to the new personal pension, so that HMRC recognises net taxable income was reduced by £10k (which in this example would be sufficient to avoid any loss of personal allowance?
And then finally - if so, then I also claim back £2k in tax paid based on the impact of the current projected loss of some of the personal allowance?
If so am I right that a net £4k contribution (in this example) would result in £10k into new personal pension?
With the only real down side that if I can't do this via a cheque to my existing employer pension I then have to have a new personal pension with the cost of managing that / paying fees on it etc?
Hopefully that makes some sense, but if not then I apologise !!
Thanks in advance
I understand additional pension contributions are a good way to achieve this by reducing net taxable salary, but I don't think I can do this though payroll now in current tax year (no more payroll in this tax year), and my employer run pension does not seem to allow me to make direct personal contributions (e.g by writing them a cheque from existing taxed salary).
So, the question is, can I start a new / separate personal pension alongside my existing employer pension? , and if so can I check my understanding of the approach / calculations?
For example (values are simplified here to test my thinking), have I got this right ??
If I want to reduce my taxable pay by £10k, then I believe I could open a personal pension with a cheque for £8k. What I have read says a pension provider will claim back the 20% standard tax relief and put that into the new person pension, meaning the pension starts with £10k in it.
Then I claim tax relief for the other 20% , to end up with 40% tax relief on the pension contributions, when I do my self assessment. Net is I expect to then say I have paid £6k but get £10k in to the new personal pension.
Then when I do my my self assessment will that recognise that there was a £10k contribution to the new personal pension, so that HMRC recognises net taxable income was reduced by £10k (which in this example would be sufficient to avoid any loss of personal allowance?
And then finally - if so, then I also claim back £2k in tax paid based on the impact of the current projected loss of some of the personal allowance?
If so am I right that a net £4k contribution (in this example) would result in £10k into new personal pension?
With the only real down side that if I can't do this via a cheque to my existing employer pension I then have to have a new personal pension with the cost of managing that / paying fees on it etc?
Hopefully that makes some sense, but if not then I apologise !!
Thanks in advance
Converse2020 said:
Background is I'm looking for options to reduce taxable earnings to avoid any loss of my personal allowance in this current tax year.
I understand additional pension contributions are a good way to achieve this by reducing net taxable salary, but I don't think I can do this though payroll now in current tax year (no more payroll in this tax year), and my employer run pension does not seem to allow me to make direct personal contributions (e.g by writing them a cheque from existing taxed salary).
So, the question is, can I start a new / separate personal pension alongside my existing employer pension? , and if so can I check my understanding of the approach / calculations?
For example (values are simplified here to test my thinking), have I got this right ??
If I want to reduce my taxable pay by £10k, then I believe I could open a personal pension with a cheque for £8k. What I have read says a pension provider will claim back the 20% standard tax relief and put that into the new person pension, meaning the pension starts with £10k in it.
Then I claim tax relief for the other 20% , to end up with 40% tax relief on the pension contributions, when I do my self assessment. Net is I expect to then say I have paid £6k but get £10k in to the new personal pension.
Then when I do my my self assessment will that recognise that there was a £10k contribution to the new personal pension, so that HMRC recognises net taxable income was reduced by £10k (which in this example would be sufficient to avoid any loss of personal allowance?
And then finally - if so, then I also claim back £2k in tax paid based on the impact of the current projected loss of some of the personal allowance?
If so am I right that a net £4k contribution (in this example) would result in £10k into new personal pension?
With the only real down side that if I can't do this via a cheque to my existing employer pension I then have to have a new personal pension with the cost of managing that / paying fees on it etc?
Hopefully that makes some sense, but if not then I apologise !!
Thanks in advance
Your figures are a bit off, but the principle is correct.I understand additional pension contributions are a good way to achieve this by reducing net taxable salary, but I don't think I can do this though payroll now in current tax year (no more payroll in this tax year), and my employer run pension does not seem to allow me to make direct personal contributions (e.g by writing them a cheque from existing taxed salary).
So, the question is, can I start a new / separate personal pension alongside my existing employer pension? , and if so can I check my understanding of the approach / calculations?
For example (values are simplified here to test my thinking), have I got this right ??
If I want to reduce my taxable pay by £10k, then I believe I could open a personal pension with a cheque for £8k. What I have read says a pension provider will claim back the 20% standard tax relief and put that into the new person pension, meaning the pension starts with £10k in it.
Then I claim tax relief for the other 20% , to end up with 40% tax relief on the pension contributions, when I do my self assessment. Net is I expect to then say I have paid £6k but get £10k in to the new personal pension.
Then when I do my my self assessment will that recognise that there was a £10k contribution to the new personal pension, so that HMRC recognises net taxable income was reduced by £10k (which in this example would be sufficient to avoid any loss of personal allowance?
And then finally - if so, then I also claim back £2k in tax paid based on the impact of the current projected loss of some of the personal allowance?
If so am I right that a net £4k contribution (in this example) would result in £10k into new personal pension?
With the only real down side that if I can't do this via a cheque to my existing employer pension I then have to have a new personal pension with the cost of managing that / paying fees on it etc?
Hopefully that makes some sense, but if not then I apologise !!
Thanks in advance
If you want to reduce your taxable income by £10k then you are free to make a pension contribution to any pension of your choice (existing or new).
You would need to invest £8K to get the £2K tax relief at source withing your pension (your pension provider will do this for you).
You would then be able to reclaim a further £2K (the higher rate of tax) via your tax return.
So it would cost you a net £6K to get a £10k pension contribution and reduce your taxable income by the same £10K.
There is no additional 20% reclaim to be made on this £10K, as 20% of this is already a tax reclaim. You are effectively adding this in twice.
You will be paying management fees on any pension funds. Whether this is from one provider on the whole amount or several providers on smaller amounts makes no difference (unless one is more expensive than the other).
I hope that helps, just shout if I can clarify anything or this raises further questions.
Cheers
Thanks for the replies. Just to clarify I think we are / were saying the same thing with regards the tax relief on the pension. I get that 20% /£2k in my example would be managed at source by pension provider and then the other 20% £2k would be recovered via self assessment.
The extra £2k in my example was not from double counting the pension relief, but rather an additional saving by avoiding paying 40% PAYE tax on an extra £5,000 of taxable salary (given for every £2 of pay over the threshold the personal allowance is reduced by £1).
Am I right in this logic ?
If so it does seem £4K net cost would result in £10k in pension.
The extra £2k in my example was not from double counting the pension relief, but rather an additional saving by avoiding paying 40% PAYE tax on an extra £5,000 of taxable salary (given for every £2 of pay over the threshold the personal allowance is reduced by £1).
Am I right in this logic ?
If so it does seem £4K net cost would result in £10k in pension.
Converse2020 said:
Thanks for the replies. Just to clarify I think we are / were saying the same thing with regards the tax relief on the pension. I get that 20% /£2k in my example would be managed at source by pension provider and then the other 20% £2k would be recovered via self assessment.
The extra £2k in my example was not from double counting the pension relief, but rather an additional saving by avoiding paying 40% PAYE tax on an extra £5,000 of taxable salary (given for every £2 of pay over the threshold the personal allowance is reduced by £1).
Am I right in this logic ?
If so it does seem £4K net cost would result in £10k in pension.
If you are referring to the reduction in annual allowance for income between £100k and £123k (which has the effect of creating a marginal rate of tax of 60% for these earnings) then making a pension contribution of the earnings within this bracket does indeed reduce your taxable income in any given tax year.The extra £2k in my example was not from double counting the pension relief, but rather an additional saving by avoiding paying 40% PAYE tax on an extra £5,000 of taxable salary (given for every £2 of pay over the threshold the personal allowance is reduced by £1).
Am I right in this logic ?
If so it does seem £4K net cost would result in £10k in pension.
So in this event it does indeed effectively cost you £4k to receive £10k into you pension as you described. Sorry if I was confused with how you set this out before.
Given this results in a 250% increase to your £4k contribution cost at no risk (though obviously the value of your pension fund can and will fluctuate) it is an absolute no-brainer!
anonymous said:
[redacted]
The OP is referring to his reduction in personal allowance with income going over £100k, which effectively acts as an additional 20% tax on income in the £100k to £123k band.By making a pension contribution to keep earnings just under £100k he will not lose his personal allowance and therefore not have this slice of income taxed at an effective 60% rate.
Converse2020 said:
Great. Thanks for checking again and validating my thinking.
Now to chose a pension provider !
No problem!Now to chose a pension provider !
Good luck with the search, there are many (some would argue to many) options for you.
HL, Fidelity and Interactive Investor are always popular with people here, assuming you want to manage the investments yourself.
The Intelligent Money sticky may provide some interesting reading (disclaimer - this is my pension company).
Good luck and just shout if there is anything else.
JulianPH said:
No problem!
Good luck with the search, there are many (some would argue to many) options for you.
HL, Fidelity and Interactive Investor are always popular with people here, assuming you want to manage the investments yourself.
The Intelligent Money sticky may provide some interesting reading (disclaimer - this is my pension company).
Good luck and just shout if there is anything else.
Thanks Julian - have read the sticky and also done some research but even SIPPs vs personal pensions is news for me. Good luck with the search, there are many (some would argue to many) options for you.
HL, Fidelity and Interactive Investor are always popular with people here, assuming you want to manage the investments yourself.
The Intelligent Money sticky may provide some interesting reading (disclaimer - this is my pension company).
Good luck and just shout if there is anything else.
Ideally I'd like a simpler approach, so suspect that rules out managing myself via a SIPP. That said given this investment would be in addition to my existing work pension, I'm reasonably comfortable taking a risk.
PS - am I as well posting any questions on the Intelligent Money sticky rather than here? if so let me know.
Sorry for piggybacking on this topic, but it's just jarred my memory.
Last year around May I received an increase of £200 per month (I get paid callout now) so I decided to open a S&S SIPP with BestInvest and just pop the money in there every month. I'm a 40% tax payer. I see BestInvest keep adding 20% to my payments, but are you saying I can complete the Self Assessment to claim another 20% back? If so, I received a latter 2 years ago saying I didn't need to complete Self Assessment anymore, I assume I just reactivate it and it's pretty self explanatory where I need to pop the figures in to the Self Assessment form?
NotSoSmart now am I
Last year around May I received an increase of £200 per month (I get paid callout now) so I decided to open a S&S SIPP with BestInvest and just pop the money in there every month. I'm a 40% tax payer. I see BestInvest keep adding 20% to my payments, but are you saying I can complete the Self Assessment to claim another 20% back? If so, I received a latter 2 years ago saying I didn't need to complete Self Assessment anymore, I assume I just reactivate it and it's pretty self explanatory where I need to pop the figures in to the Self Assessment form?
NotSoSmart now am I
Converse2020 said:
JulianPH said:
No problem!
Good luck with the search, there are many (some would argue to many) options for you.
HL, Fidelity and Interactive Investor are always popular with people here, assuming you want to manage the investments yourself.
The Intelligent Money sticky may provide some interesting reading (disclaimer - this is my pension company).
Good luck and just shout if there is anything else.
Thanks Julian - have read the sticky and also done some research but even SIPPs vs personal pensions is news for me. Good luck with the search, there are many (some would argue to many) options for you.
HL, Fidelity and Interactive Investor are always popular with people here, assuming you want to manage the investments yourself.
The Intelligent Money sticky may provide some interesting reading (disclaimer - this is my pension company).
Good luck and just shout if there is anything else.
Ideally I'd like a simpler approach, so suspect that rules out managing myself via a SIPP. That said given this investment would be in addition to my existing work pension, I'm reasonably comfortable taking a risk.
PS - am I as well posting any questions on the Intelligent Money sticky rather than here? if so let me know.
SIPPs and personal pensions have been the same things for years now. In the past you had no choice as to where your money was invested. It went into the "with profits" fund of the life insurance company you took the pension out with.
Nowday's everyone has the choice to 'self invest' (that is to say pick the funds they want to invest in). So almost all pensions are SIPPs.
Ginge R said:
All most people need is a well priced, well run Personal Pension.
I agree completely.SmartManDan said:
Sorry for piggybacking on this topic, but it's just jarred my memory.
Last year around May I received an increase of £200 per month (I get paid callout now) so I decided to open a S&S SIPP with BestInvest and just pop the money in there every month. I'm a 40% tax payer. I see BestInvest keep adding 20% to my payments, but are you saying I can complete the Self Assessment to claim another 20% back? If so, I received a latter 2 years ago saying I didn't need to complete Self Assessment anymore, I assume I just reactivate it and it's pretty self explanatory where I need to pop the figures in to the Self Assessment form?
NotSoSmart now am I
Yes. If your pension contributions were made from income that was taxed at 40% then you have another 20% to reclaim from HMRC.Last year around May I received an increase of £200 per month (I get paid callout now) so I decided to open a S&S SIPP with BestInvest and just pop the money in there every month. I'm a 40% tax payer. I see BestInvest keep adding 20% to my payments, but are you saying I can complete the Self Assessment to claim another 20% back? If so, I received a latter 2 years ago saying I didn't need to complete Self Assessment anymore, I assume I just reactivate it and it's pretty self explanatory where I need to pop the figures in to the Self Assessment form?
NotSoSmart now am I
JulianPH said:
SIPPs and personal pensions have been the same things for years now. In the past you had no choice as to where your money was invested. It went into the "with profits" fund of the life insurance company you took the pension out with.
Nowday's everyone has the choice to 'self invest' (that is to say pick the funds they want to invest in). So almost all pensions are SIPPs.
Superficially, sure. But the method of use and employment is distinct. Personal pensions, per se, are defined simply, as ‘pensions that you arrange yourself’. In that a Stakeholder Pension is also a Personal Pension, alongside a SIPP, it doesn’t follow that a Stakeholder is also the same as a SIPP. In fact, I don’t even think that what we know commonly, as a Personal Pension, even has established foundation. You still arrange it yourself, but you entrust your funds to a manager in the same way that a SIPP portfolio does. Except that it’s usually much cheaper. Cheapest isn’t always best of course, but at outset, and all other things considered, it’s the single most important factor. Nowday's everyone has the choice to 'self invest' (that is to say pick the funds they want to invest in). So almost all pensions are SIPPs.
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