Calculating income tax?

[The Gauge]

I'm trying to figure out if I have some income tax to pay and I need to know if pension contributions are factored into annual earnings to determine which income tax bracket I fall within.

For the tax year 2025 to 2026 my annual income was slightly under the £50,270 threshold, so I paid basic rate income tax.
However during that year I inherited some taxable money from my deceased mothers trust which could put me over the threshold and into the 40% tax bracket for that year.

If pension contributions are deducted from my annual gross salary to determine my taxable income, then this will factor into how much tax I have to pay.

[Josemartinez]

The Gauge said:

I'm trying to figure out if I have some income tax to pay and I need to know if pension contributions are factored into annual earnings to determine which income tax bracket I fall within.

For the tax year 2025 to 2026 my annual income was slightly under the £50,270 threshold, so I paid basic rate income tax.
However during that year I inherited some taxable money from my deceased mothers trust which could put me over the threshold and into the 40% tax bracket for that year.

If pension contributions are deducted from my annual gross salary to determine my taxable income, then this will factor into how much tax I have to pay.

I assume you are employed and paid via PAYE? Assuming your pension contributions aren't salary sacrifice they aren't deducted from your gross salary to determine your taxable income. If you are then pushed into the 40% tax band you will be able to claim additional tax relief on your pension contributions.

[craigjm]

Pension contributions reduce your taxable income

Capital distributions from a trust are generally not treated as personal taxable income for Income Tax purposes as they are subject to Inheritance Tax at the estate level before distribution

[The Gauge]

I am PAYE in public sector, so I assume my P60 for that year will give me all the figures I need to know? I believe my employer uses 'Net pay' in relation to pension payments and income tax calculations

I'll check my notes, but I believe mums trust was such that it fell outside of her estate for IHT, but with a tax liability for the beneficiaries (me) on the gain made on the investment.

Edited by The Gauge on Wednesday 11th November 15:41

[okgo]

Use claude for this sort of thing.

I just dumped 27 payslips/P60's etc into mine to give me pension carryover/taper etc remaining, it would have taken ages to bring all that together myself but took Claude 90 seconds - yours sounds like a similar sort of use case in terms of claude being able to help.

[The Gauge]

okgo said:

Use claude for this sort of thing.

I just dumped 27 payslips/P60's etc into mine to give me pension carryover/taper etc remaining, it would have taken ages to bring all that together myself but took Claude 90 seconds - yours sounds like a similar sort of use case in terms of claude being able to help.

Thanks, I've not used Claude but I have used Chatgpt before. Do I just upload scans of my P60 etc and then ask it the relevant question?

[okgo]

The Gauge said:

Thanks, I've not used Claude but I have used Chatgpt before. Do I just upload scans of my P60 etc and then ask it the relevant question?

Yes, give it detailed instructions of what you want, dump what you have in and then it will tell you whatever else its missing or should give you a decent answer. I do have a paid account but this should be easy enough.

[The Gauge]

Just checked my P60 for the year 2024 to 2025 and it shows an annual taxable pay of £41,611.17, so clearly my pension contributions had first been deducted.

So with the threshold being £50,270 for 40% tax, I was £8,658.83 under.

The gain that I received on mums trust investment was about £13,500.
For reasons I can't remember, mum had already paid 20% tax on this, with me now requiring to pay the 20% difference (to make up the 40%)

So a potential tax bill of £968.23 to pay


Am I correct with the following?...

(1) I have until 31st December 2026 to organise paying this?

2) As I've never had to complete a tax return before, and with this being a 'one off' occasion, HMRC allow me to pay this in a simplified 'one off' method without the need for a self assessment? If needing to complete a tax return, I then have to always complete one every year for the next 7 years?

Edited by The Gauge on Wednesday 11th November 18:24

[craigjm]

You have until Jan 31 to pay

The amount you owe is small. Contact them through your online tax account and they will adjust your PAYE code to collect it or issue a bill. No need for tax return

[The Gauge]

I've gathered more info together on why I need to pay additional tax..

My mums trust was with an investment with Canada Life, to move some of her money outside of IHT. I was the trustee with myself, my brother and sister as sole beneficiaries. I cashed it in when she died and I shared it equally between the three of us.

I later received a 'chargeable gain' certificate stating that the 'gain' attracted income tax. Basic rate tax had been automatically deducted by them, and I had been paid the balance.

My third of the gain is £13,871 which I believe when added to my taxable income for 2025-2026 puts me into 40% tax bracket for that year.

My PAYE taxable income for my P60 or that year was £42,673.39
Total taxable income with the £13,871 'gain' = £56,544.39

That puts me £6,273.39 above the Income tax threshold of £50,271

40% tax of £6,273.39 = £2,509.35 to pay

craigjm said:

You have until Jan 31 to pay

The amount you owe is small. Contact them through your online tax account and they will adjust your PAYE code to collect it or issue a bill. No need for tax return

Thanks, that would be a useful way of doing it.
I've just logged into my Gateway account but I can't see a way of contacting them to arrange paying
Where should I be looking please, or should I just call them on 0300 200 3300?

Edited by The Gauge on Thursday 12th November 14:05