Paye tax rate increase

[Mr Hatt]

Good morning all with this years salary increase I have reached the higher level of paye tax to 40%, just, If I increased the level of pension contribution I make each month am i right in thinking this would reduce my taxable income back to an amount that would decrease the tax rate back to lower ammount ?? any help would be appreciated thank you Steve

[darthblingbling]

Broadly yes, but what is it you are trying to achieve as the tax bandings are progressive so it's not as if all your income will be taxed at the higher rate once you go over. There are good reasons why some people may want to keep income below the higher rate band, but will depend on your own circumstances.

[Mr Hatt]

Thank you for the reply, I did not realise that, so the only part taxed at the higher rate is the smaller part over the £50k which is not as worrying. As the increase that took me over the threshold was £300 monthly and I have been thinking of contributing more toward my company pension anyway, am i right in thinking if I started paying an extra £400 monthly to my company pension, it would reduce my taxable amount to below the threshold again

[D&C]

A lot of pension contributions do not reduce your taxable income.

So if that is really important to you you need to understand which method you are using to get this extra money into your pension.

Relief at source (RAS)
Net pay
Salary sacrifice

But even if the contributions don't reduce your taxable income, for example they are made using the relief at source method, they have other benefits which effectively achieve the same objective.

RAS contributions have basic rate tax relief added by the pension company, so £240 from you would be £300 within your pension.

And the gross contribution increases your basic rate band, meaning more income is taxed at basic rate and less at 40%.

Reducing your taxable income isn't the be all and end all

[Mr Hatt]

Thank you D&C I appreciate the insight I think I need to get my pension stuff out and have a good look at it to understand what its all about at this point, perhaps i could ask a few more questions of you once i have gone through it ? I very much appreciate your advice regards steve