Obviously, taking monthly income from the SIPP reduces the MPAA to £10k. But – at least this side of the budget – we know that Brolly income is best served with a large helping of salary sacrifice to pension.
I’m analysing the options under two scenarios (and have ignored brolly margin since it’s the same in both cases).
| (Annual) | Minimum Wage Basis | Pension limit set to £10k |
| Fee Income | £30,000 | £30,000 |
| Apprentice Levy | £31 | £88 |
| Employer NI | £173 | £1905 |
| Employee NI | Nil | £410 |
| Gross Salary | £6,175 | £17,706 |
| Pension | £23,338 | £10,000 |
| Pension Input Charge | £5,335 (40%) | nil |
| Tax on Brolly Income | £2,463 (40%) | £7,082 (40%) |
| Total Tax | £8,002 | £9,487 |
Does this look correct – have I got it right that the charge for exceeding pension input amount is simply ‘contribution exceeding £10k’ multiplied by ‘marginal tax rate’?
The other issue of course is that there’s tax when removing the funds from pension later, but 25% of that becomes tax exempt.
There’s also the option of reducing SIPP income so that the marginal tax rate is 20% but this only changes the tax difference from £1484 to £1824 so there’s not much in this overall.
The only other thing I can think of is that the reduced MPAA only kicks in once the SIPP income starts, so leaving taking this until later in the tax year could be a good call.
Any thoughts?
