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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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. I have an income of around £50K. The company I work

Resolved Question:

Hi. I have an income of around £50K. The company I work for has recently been sold and I had shares in it so I will have to pay capital gains tax. I also received dividends this year from the shares I held before they were sold. I would like to put as much money as I can into my private pension pot to reduce my tax bill. Assuming I have carry forward amounts to cover, would I gain anything from putting £50K into the pension pot? could I put more in?

Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

In basic terms, the annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It's based on your earnings for the year and is capped at £40,000.

You would have to fully utilise this year's allowance first and any excess could be utlised against previous years 3 years.
Example -
If your earnings are £60,000 and you have not made any contributions into a pension plan, you could contribute £40,000 in the tax year 2014-15 plus another £20k from remaining allowance - see below.

Your annual allowance for 2011/12 to2013/14 was £50k each year and your contributions were £30k in each year.
Annual allowance remaining is
2011/12 - £20k
2012/13 - £20k
2013-14 - £20k

Your question is would you gain anything from putting £50k into the pension pot ... the answer is yes as your contribution would get you tax relief at your marginal rate.

The alternative would be to save this sum into other investments providing a much lower yield.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

Trying to reply to expert. Not yet got question fully answered. The reply to expert button doesn't seem to work. But trying again. Would I only get tax relief on the tax payable on the £50K earnings this year, or could I get tax relief from previous year's earnings and/or dividends or savings interest or even capital gains tax this year?

Expert:  taxadvisor.uk replied 2 years ago.

Jak, thank you for your reply.

As the pension contributions are in this year the relief would be against this year's tax.

Dividends carry a notional tax. If your earnings were reduced to Zero through the pension contribution you make, that means £31,865 of taxable income would attract tax at 20%.
If this income includes non earned income i.e interest and dividends then there would be no additional tax payable on dividend as the notional tax would also be tax credit against the final tax calculation.

As far as CGT goes, the rate is governed by your total taxable income in the year. If it remains within the basic rate threshold then your CGT rate would be 18% otherwise may be 28% or a combination of both.

You won't tax relief from previous year's earnings or tax paid.

I hope this is helpful.

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