Correctly calculating reduced personal tax allowance
Discussion
thebursar said:
Quick maths check:
I calculate my reduced personal allowance as £6,356 due to a taxable income in 22-23 of £112,428 (i.e., £12,570 less £12,428/2)
HMRC have calculated it as £12,356.
I paid over £12,000 into a SIPP during the year. Prior to earning over £100k, I would claim the higher rate relief of 20% (25% of contributions) i.e., £3,000. (The basic tax relief was claimed by my pension provider and added to the figure I had invested.)
Are HMRC simply calculating my new personal allowance by adding the higher rate relief, plus the same amount again to compensate for the loss of personal allowance, to my reduced personal allowance?
The sums work, but I want to ensure I understand correctly. Unfortunately, their tax calculation doesn't provide a breakdown of how they have come up with their figure provided.
Gross income minus gross pension contributions, would mean you are £428 over. Divide by 2, takes £214 off your personal allowance, (£21,570-214) gives you your personal allowance of £12,356 I calculate my reduced personal allowance as £6,356 due to a taxable income in 22-23 of £112,428 (i.e., £12,570 less £12,428/2)
HMRC have calculated it as £12,356.
I paid over £12,000 into a SIPP during the year. Prior to earning over £100k, I would claim the higher rate relief of 20% (25% of contributions) i.e., £3,000. (The basic tax relief was claimed by my pension provider and added to the figure I had invested.)
Are HMRC simply calculating my new personal allowance by adding the higher rate relief, plus the same amount again to compensate for the loss of personal allowance, to my reduced personal allowance?
The sums work, but I want to ensure I understand correctly. Unfortunately, their tax calculation doesn't provide a breakdown of how they have come up with their figure provided.
Excellent planning now to minimise the 60% tax trap
Edited by SuperCharged V6 on Saturday 8th July 14:07
thebursar said:
Ah, yes, I forgot this. Thank you.
So, if I pay over £12,000 I should include £14,400 based on your calculation? However, I received £3,000 (£250 per month on a monthly investment of £1,000) in basic rate relief ,claimed by my pension provider... so should I not use £15,000 instead?
Oops! My silly error. You need £12,000 x 125/100 to get it right So, if I pay over £12,000 I should include £14,400 based on your calculation? However, I received £3,000 (£250 per month on a monthly investment of £1,000) in basic rate relief ,claimed by my pension provider... so should I not use £15,000 instead?
That gets you to the £3,000 refund.The devil is in the detail, but if your gross income was £113k (and there was no pension contribution via PAYE) and you independently sent £12k over to your SIPP…
That £12k becomes £15k (once the scheme adds basic rate relief) and the full £15k of ‘pension input’ will applied against your £113k of gross income, dropping it below the magic £100k and therefore, you’ll get the full Personal Allowance of £12,570.
That £12k becomes £15k (once the scheme adds basic rate relief) and the full £15k of ‘pension input’ will applied against your £113k of gross income, dropping it below the magic £100k and therefore, you’ll get the full Personal Allowance of £12,570.
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