Tax liability reduction
Discussion
Eric Mc said:
It's the reason why I tend to shy away from detailed computations and calculations when posting on internet forums. It's so easy to be "not quite right" - and such calculations can be time consuming.
If I am going to get involved in such calculations - I would want to be paid for the privilege too.
Lesson learnt for me on this one - one can try and be too helpful!If I am going to get involved in such calculations - I would want to be paid for the privilege too.
David
sumo69 said:
Eric Mc said:
It's the reason why I tend to shy away from detailed computations and calculations when posting on internet forums. It's so easy to be "not quite right" - and such calculations can be time consuming.
If I am going to get involved in such calculations - I would want to be paid for the privilege too.
Lesson learnt for me on this one - one can try and be too helpful!If I am going to get involved in such calculations - I would want to be paid for the privilege too.
David
Dont let that stop you being helpful though Eric, people do understand you're giving pointers on a forum (for free!) and are grateful without expecting perfection.
I say this as someone who provides advice for a living also, I often find that giving a little away brings greater rewards. Sometimes it just brings headaches though...
I say this as someone who provides advice for a living also, I often find that giving a little away brings greater rewards. Sometimes it just brings headaches though...
sumo69 said:
Ok - my 9am meeting got postponed so I have actually got a bit of time to get the pen, paper and calculator and work this through.
On a gross salary of £120k with no pension contribution to reduce this, the tax liability paid at source via PAYE is £41126 - at this income level you receive no tax-free personal allowance.
If you were to make a 16k personal pension contributution, this is grossed-up to £20k automatically by HMRC and has the effect of extending your income charged at the basic 20% rate by the same amount and reinstates your personal allowance - I make it that your tax liability would amount to £33884 so you would receive a refund from HMRC of £7242.
Using a 20k PPC increases the grossed-up pension contribution to £25k and increases the tax refund to £8242.
So your £20k pension pot would cost you £8758 (being £16k less £7242) or your 25k pension pot would cost you £11758 (being £20k less £8242).
Apologies to Zigster - his Actuarial brain is brighter than mine - that will teach me to post whilst sitting on the London Underground surfing the forums on my I phone!
Bandit - the "price" of your pension pot is higher than I originally quoted, but still a real "steal" if you can afford to pay the contribution without effecting your lifestyle or spending requirements.
Hope we are all happy now!
David
Very Happy - Thanks David for confirming.On a gross salary of £120k with no pension contribution to reduce this, the tax liability paid at source via PAYE is £41126 - at this income level you receive no tax-free personal allowance.
If you were to make a 16k personal pension contributution, this is grossed-up to £20k automatically by HMRC and has the effect of extending your income charged at the basic 20% rate by the same amount and reinstates your personal allowance - I make it that your tax liability would amount to £33884 so you would receive a refund from HMRC of £7242.
Using a 20k PPC increases the grossed-up pension contribution to £25k and increases the tax refund to £8242.
So your £20k pension pot would cost you £8758 (being £16k less £7242) or your 25k pension pot would cost you £11758 (being £20k less £8242).
Apologies to Zigster - his Actuarial brain is brighter than mine - that will teach me to post whilst sitting on the London Underground surfing the forums on my I phone!
Bandit - the "price" of your pension pot is higher than I originally quoted, but still a real "steal" if you can afford to pay the contribution without effecting your lifestyle or spending requirements.
Hope we are all happy now!
David
I will PM you about providing some official help !
DoubleSix said:
Dont let that stop you being helpful though Eric, people do understand you're giving pointers on a forum (for free!) and are grateful without expecting perfection.
I second that, its always good to have resident experts on forums (proper experts...not internet experts).Sometimes I wonder if Eric actually has a day job though
DoubleSix said:
Dont let that stop you being helpful though Eric, people do understand you're giving pointers on a forum (for free!) and are grateful without expecting perfection.
I say this as someone who provides advice for a living also, I often find that giving a little away brings greater rewards. Sometimes it just brings headaches though...
+1I say this as someone who provides advice for a living also, I often find that giving a little away brings greater rewards. Sometimes it just brings headaches though...
I hesitated to "correct" as the fundamental advice was spot on, just a mistake in the maths which can happen to anyone. Plus it's always a pleasure to see an internet forum that provides genuinely helpful responses rather than descending into b
hing.Re the other posts, I don't see this as particularly obscure advice - I would have expected it to be one of the first things an accountant would suggest to someone who wanted to reduce their personal tax liability for a year. I've definitely seen articles in the Sunday papers about it as well:
http://www.thisismoney.co.uk/money/pensions/articl...
Look at it on a tax year basis. If your earnings fluctuate around the £100k mark then do it in tax years where you are just over. (Obviously all this is just general commenting on the idea rather than specific advice to an individual ...)
Save 60% (perhaps greater if you can save the NI) on the way in, tax free roll-up when the money is in the pension, and perhaps pay as little as 15% tax on the way out (i.e. 20% on the pension and 0% on the tax-free lump sum of one-quarter). Sounds good to me.
Gassing Station | Finance | Top of Page | What's New | My Stuff