Pension and CGT on Shares

[caffe]

An individual is a 40% taxpayer on their salary and has made pension contributions totaling £30,000 gross over the last three tax years. In the current year, they are selling shares and expect to receive a capital gain of £60,000. They plan to use the entire capital gain to make additional pension contributions this year, utilising the carry forward allowance from previous years.
Will using the carry forward allowance in this way increase their tax-free threshold for this year, and how will it affect the tax payable on the capital gain? i.e will they pay a lower %?

[someone]

There's not sufficient information in your post to answer for definite.

1. Are they paying in 60K total or 90K? It's not obvious from your post but the mention of utilising carry forward suggests 90K

2. They have to have employment (or other relevant) income of at least 90K otherwise it gets very messy! (and very tax inefficient)

3. The basic rate band will be extended to take account of the pension contribution. However you can think of it as reducing your taxable income. This can make it easier to reason about.

4. If this means that ALL income is taxed at the lower rate then some or all of the CGT gain will be taxed at the lower rate too.

5. If their income is over around 140K then a 90K pension contribution won't affect the CGT tax.

6. If their income is around 100K, then a 90K pension contribution will reduce the CGT due but will not get as much pension tax relief as can be obtained by only contributing as much as is taxed at 40%

There are a lot of moving variables but it's worth setting up a spreadsheet to do the calculations to see how much tax is actually being saved. My guess is that you'll get most tax relief by paying in just enough to reduce your income to the 40% threshold and then any left over used in the following year(s), basically getting 40% relief on it all.

If you pay more than that into your pension then you'll only get 20% relief on the contribution, and pay (I believe) 10% less on the capital gain. So total 30% relief. So it really only makes sense if you're earning very close to the 90K threshold where it would take around 6 years to contribute the 60K extra and get 40% relief.

Also note that you can reduce your effective taxable income below the personal allowance - then you'll not get any tax relief at all in your pension.

[caffe]

Thanks, yes the employment income for the current year is 92k , they won't earn this level of income amount in 3 years time as they plan to retire, so your points are noted!