Pension contributions can be used to relieve LC19

[starstruck]

My head is starting to hurt. Could they make it any more damn complicated!

So, with maximum carry forward of £140k, you could earn £250k (£140k + £110k) before the taper starts?

So, my previous table should actually look like this?

Income........Maximum pension contribution (including carry forward)
£250k.................£140k
£270k.................£130k
£290k.................£120k
£310k.................£110k
>310k.................£110k

That's in line with the case study, so I guess so - depends on other income like dividends also

[webberg]

Why 83,333 and 16,667 and not 80,000 and 20,000 ?

From HL - "To make a gross pension contribution of £100,000 you only need to pay: £80,000. The government will add 20% basic rate tax relief: £20,000."

Because I started with "how much plus 20% = £100k".

I assumed the gross pension contribution was £100k.

I grossed up rather than netted down.

[jbeer]

Jbeer , I would appreciate you either explain further or point me to some published example.

Say I make a £50k contribution to my SIPP. Government makes a 20% contribution of 10K. Say I have a 120k LC, does that not reduce my tax liability on the LC to 70K?

Hi, no tax liability would still be on the 120K. If you made a 50K gross pension contribution (40K from you) and assuming no other earnings then think of it as the 40% tax applies on the amount over 95K (assuming higher rate of tax is 45K, 45+50 = 95). So you pay 40% on 25K and 20% on 83K (assuming tax free threshold is 12K, 95-12 = 83)

[starstruck]

Because I started with "how much plus 20% = £100k".

I assumed the gross pension contribution was £100k.

I grossed up rather than netted down.

Yeah I realised that -> 83.33 * 1.2 = 100
but am confused why HL says 100 gross = 80 net

[jbeer]

100 gross = 80 net is correct.

If grossing up, its how much plus 25%.

[starstruck]

Hi, no tax liability would still be on the 120K. If you made a 50K gross pension contribution (40K from you) and assuming no other earnings then think of it as the 40% tax applies on the amount over 95K (assuming higher rate of tax is 45K, 45+50 = 95). So you pay 40% on 25K and 20% on 83K (assuming tax free threshold is 12K, 95-12 = 83)

This is what is says here https://www.uktaxcalculators.co.uk/

£120,000.00 Annual Gross Income - Tax Breakdown for the 2017 Tax Year
Gross Income £120,000.00
Tax Free Personal Allowance £11,500.00
Total Taxable After Allowances £68,500.00
Basic Rate Tax at 20% is £6,700.00
Higher Rate Tax at 40% is £14,000.00
Pension - Your Contribution £40,000.00
Total Tax Deducted £20,700.00

[webberg]

Yep.

Should have netted down.

Schoolboy error - sorry.

[jbeer]

That is what is says here https://www.uktaxcalculators.co.uk/

£120,000.00 Annual Gross Income - Tax Breakdown for the 2017 Tax Year
Gross Income £120,000.00
Tax Free Personal Allowance £11,500.00
Total Taxable After Allowances £68,500.00
Basic Rate Tax at 20% is £6,700.00
Higher Rate Tax at 40% is £14,000.00
Pension - Your Contribution £40,000.00
Total Tax Deducted £20,700.00

Think you have plugged in a 40K gross contribution. They are also factoring in the 20% tax relief you get added to your pension I reckon.

[starstruck]

Think you have plugged in a 40K gross contribution. They are also factoring in the 20% tax relief you get added to your pension I reckon.

If I change pension contribution to 50K it reduces tax to:

Total Tax Deducted £16,360.00

It does say "the amount you pay" so I think £40k is correct.

[jbeer]

I think "you' in this context means personal(employee) contribution as opposed to employer contribution