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Where Taxpayers and Advisers Meet

Tips for avoiding tax

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm
Tips for avoiding tax

Postby JOHNRE » Mon Nov 22, 2021 9:21 am

Hello, I am aged 63 and am in receipt if an occupational pension of £45,000 a year. In 3 years time I will be receiving the full State Pension which will take me over the 40% tax threshold. Is there anything I can do to stop being taxed at 40%? Any suggestions welcome.

I should add that I have a Sipp which is funded to the tune of £2880 every year. Is it feasible to increase to increase my contributions to the Sipp in line with my increased income (in the knowledge that I would get no tax relief on these additional contributions)?

pawncob
Posts:4790
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Tips for avoiding tax

Postby pawncob » Mon Nov 22, 2021 11:38 am

On those figures you won't be in 40% band.
With a pinch of salt take what I say, but don't exceed your RDA

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Mon Nov 22, 2021 12:23 pm

My understanding is that, for the current tax year, you pay 40% on any income that is above the Personal Allowance + £37,701 so my income would be well above that threshold.

pawncob
Posts:4790
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Tips for avoiding tax

Postby pawncob » Mon Nov 22, 2021 12:42 pm

Misunderstood the figures.
Defer the state pension and you'll only pay 20% when you take it as a lump sum.
With a pinch of salt take what I say, but don't exceed your RDA

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Mon Nov 22, 2021 12:52 pm

Unfortunately, if you retire after April 2016 you can no longer get a lump sum, just a higher state pension.

D&C
Posts:59
Joined:Mon Nov 25, 2019 11:35 pm

Re: Tips for avoiding tax

Postby D&C » Mon Nov 22, 2021 6:01 pm

AIUI as you have no pensionable income you will be limited to a gross contribution of £3,600 for tax relief purposes.

But based on your figures if you had the State Pension in the current tax year you will only paying higher rate tax on £470, which is less than 1% of your taxable income.

If the Personal Allowance and basic rate band is maintained at current rates, as seems likely, this will increase the amount taxed at higher rates but your country will thank you for helping keep it running :)

You could make charitable donations under the Gift Aid scheme to reduce the higher rate tax payable.

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Tue Nov 23, 2021 10:21 am

Actually, my income would be £54,339 which is nearly £4000 over the threshold for 40% tax.

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Tue Nov 23, 2021 10:22 am

The threshold is £50,271.

JOHNRE
Posts:84
Joined:Sat Feb 06, 2016 2:03 pm

Re: Tips for avoiding tax

Postby JOHNRE » Tue Nov 23, 2021 10:25 am

I appreciate that I can only get tax relief on contributions up to £2880 given that I have no “pensionable income”. My queries, however, are…

1. Am I allowed to make additional payments that do *not* attract tax relief?
2. Will these additional payments to my Sipp prevent me from going over the threshold for paying 40% tax?

John

iwmtaxadvisor
Posts:33
Joined:Wed Sep 09, 2020 5:12 pm
Contact:

Re: Tips for avoiding tax

Postby iwmtaxadvisor » Tue Nov 23, 2021 12:16 pm

As asked, and actually I'm not sure why you would want to avoid being a higher rate tax payer:
1. yes
2. no

Options
a) increase charitable contributions
b) claim losses sideways on a self employment (one that is started with a view to making profits and with reasonable expectation of such)
c) emigrate
d) some of the tax write-off investments will still work for you from a tax point of view, ignoring for the moment the likely loss of capital

Comment
I cannot see any advantage to putting money into a SIP with no tax relief, only to be taxed as income on the way out (on most of it) unless you plan to use it as an IHT mitigation vehicle and die before 75.

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Robert Noble-Warren, Chartered Tax Adviser and Asset Manager
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