Am I still higher rate taxpayer after large pension contribution ?

[LimitedMan]

Hi,

Apologies I have left world of contracting to go permanent and can't think of better place to ask this question given the expert advice received in the past on this forum.

Question is for first time had some spare money and made a large pension contribution that takes me below the £50,000 tax threshold. This was to make use of extra tax relief and also not have to re-pay the child benefit. Suddenly occurred to me am I still classed as a higher rate tax payer given under to 50k threshold and more importantly will I still get the 40% tax relief on the pension contributions on portion above 50k or am I now classed as lower rate tax payer and only get 20% ?

Any help greatly appreciated.

[Lance]

Hi,

Apologies I have left world of contracting to go permanent and can't think of better place to ask this question given the expert advice received in the past on this forum.

Question is for first time had some spare money and made a large pension contribution that takes me below the £50,000 tax threshold. This was to make use of extra tax relief and also not have to re-pay the child benefit. Suddenly occurred to me am I still classed as a higher rate tax payer given under to 50k threshold and more importantly will I still get the 40% tax relief on the pension contributions on portion above 50k or am I now classed as lower rate tax payer and only get 20% ?

Any help greatly appreciated.

I don't understand.
How does a large pension contribution take you below the threshold? Is it salary sacrifice by the umbrella? If it is then there isn't extra tax relief anyway.

You've not gone and removed the pension from your take home pay in your SA have you? That would be fraud/evasion.

[northernladuk]

You aren't making your situation very clear with your name and then admittance you are perm. Where is this money coming from? Is this from your LTD or personal savings? You'll still be in the higher tax bracket because of your perm income? Shouldn't change as the 50k isn't from your perm wage so still being taxed on income?

The details of your situation are pretty key here and sadly there are non.

[cojak]

Yes, the pension contribution can take you below the 40% threshold (I've done it every year since I was a permie), but it depends on how how much the contribution is and how high your salary was in the first place.

You can wait and put it into your SA but I would tell HMRC as soon as you've made the payment, they will adjust your tax code to show it.

And you need to do it before the 6th April to make use of this tax year (just in case you make the same amount and want to do the same thing in the next tax year )

[luxCon]

Cojak is correct. The pension contributions will reduce the threshold relating to the Child Support , but you must declare the contributions on SA.

You will however pay PAYE taxed on the 50k PLUS , but will get an additional adjustment for the 20% on your final SA. These wont go in to your pension, unlike the initial 20% that does. It reduces your final tax liability. for the year

[Paralytic]

It's probably worth pointing out that only personal contributions into a pension adjust the tax treatment as per above posts. Payments from gross salary from an employer (including Umbrella) do not, since those payments have already had tax relief via the salary sacrafice.

[luxCon]

It's probably worth pointing out that only personal contributions into a pension adjust the tax treatment as per above posts. Payments from gross salary from an employer (including Umbrella) do not, since those payments have already had tax relief via the salary sacrafice.

Ref the above, If you are a FTC on daily rate through an umbrella I believe its much better to do a salary sacrifice at source, thus saving yourself on both Empyr and Empee NIs and potentially the apprentice levy. Doing it as a personal contribution is net of those. deductions.

[Paralytic]

Ref the above, If you are a FTC on daily rate through an umbrella I believe its much better to do a salary sacrifice at source, thus saving yourself on both Empyr and Empee NIs and potentially the apprentice levy. Doing it as a personal contribution is net of those. deductions.

Agreed, but it wasn't clear that when people were referring to "pension contributions" and how it affects tax thresholds, they were referring to personal contributions only.

[Lance]

It's probably worth pointing out that only personal contributions into a pension adjust the tax treatment as per above posts. Payments from gross salary from an employer (including Umbrella) do not, since those payments have already had tax relief via the salary sacrafice.

How can this be?
If I pay myself £8k, and take £42k dividends, and pay £40k as employer pension contribution, my net pay, before tax is £50k, not £90k. And child benefit is based on £50k. That's according to my accountant before anyone asks.

[luxCon]

How can this be?
If I pay myself £8k, and take £42k dividends, and pay £40k as employer pension contribution, my net pay, before tax is £50k, not £90k. And child benefit is based on £50k. That's according to my accountant before anyone asks.

You are just repeating and confirming what he is saying.

Employer's contributions dont reduce your taxable income, It reduces your Gross income.