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Where Taxpayers and Advisers Meet

Can I use my pension to drop out of 40% tax?

Taxedtoomuch
Posts:2
Joined:Fri Apr 01, 2016 4:43 pm
Can I use my pension to drop out of 40% tax?

Postby Taxedtoomuch » Fri Apr 01, 2016 4:59 pm

I earn £40k +5K from a buy to let.
So £45K in total
If I pay 15k into my pension, would I now be due tax on £30k?
Dropping me out of the 40% tax rate?

In addition/
I have a company car which costs me £384 in tax monthly.(BIK of around 11k)
My company car tax bill on 30K should then be £192 in tax monthly?

Would this be the case?
I do not have much in the way of outgoings so would rather save Tax at the moment than have more cash in my pocket.
I am 55 soon, so can start to pull out cash from my pension later this year.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Can I use my pension to drop out of 40% tax?

Postby robbob » Fri Apr 01, 2016 6:07 pm

If I pay 15k into my pension, would I now be due tax on £30k?
Sort of but not exactly - you will likely be granted basic rate relief via addition into the pot (unless its a payment as deduction from gross salary) via hmrc/pension company so calculate 80% chuck this in and the 20% relief is added into the pot rather than giving you a tax refund. the higher rate relief will need to be claimed from hmrc - unless again its a deduction from gross salary.

Think of it as your allowable total taxable income before higher rate tax being increased by gross pension payment - say 42k normally + 15k into the pot = 57k total income before h rate tax charged.


40+5+11 = 56 so jobs a good un




In summary pension should do the job as appropriate speaking from the tax viewpoint , pretty much a no brainer nowadays if you can afford the cash outlay and are making sure the pension pot can be drawn flexibly with minimal fees. Obviously with pensions you should not do anything without seeking specific specialist advise and or conducting your own thorough research - blah de blah de blah.

Taxedtoomuch
Posts:2
Joined:Fri Apr 01, 2016 4:43 pm

Re: Can I use my pension to drop out of 40% tax?

Postby Taxedtoomuch » Fri Apr 01, 2016 6:50 pm

Thanks for that Rob, just need to grit my teeth and tighten my current belt and do it!! :D


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