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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4939
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Being made redundant this month and have a new job to go to.

Resolved Question:

Being made redundant this month and have a new job to go to. This year with the redundancy payment I will be a 40% tax payer. I would like to minimise this with a large pension contribution. I also have a property let and am a Self Asessment tax payer.
I am trying to work out in advance how large a pension contribution to make and when I should make it to avoid 40% tax
My assumptions are as follows
A, Personal Allowance £10600
B. Tax bands @20% £31785
A+B Rate before 40% £42385
C. Taxable Earnings from current Job March 15->July 15 £8787.5 (from payslip)
D. Estimated Earning at new job £45000 for 9 months £33750 (however I will pay 7.5% to company pension matched by employer. Don't know quite know how to work this out)
E Property income less expenses £3900 - Estimated
F. Excess of £47700 redundancy gorss over £30000 tax free redundancy £17700
G (C+D+E+F) Total Earnings estimated April -> March 2016 £64137.5
H (G - (A+B)) Excess Over 40% ceiling estimated £21,753
Question 1 to avoid 40% tax How Much Do I contribute to my Pension
and how do I calculate it given these figs are my rough working out and redundancy is NI'ed .
Question 2 can i wait for 2015/16 P60 to put the money into the SIPP and what figures are important to consider from the P60
Any offers that understand U tax welcomed.
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.
Hello and welcome to the site. Thank you for your question.

You can contribute up to a maximum of £40,000. Maximum relievable personal contribution capped by the annual allowance and 100% of relevant UK earnings.

Property income is not regarded as earned income and therefore can be excluded from your calculation.

Based on your figures H (G - (A+B)) Excess Over 40% ceiling estimated £21,753 would read (21,753-3,900-2,531(7.5% pension contribution)) £15,322.

If cashflow was not an issue, then a gross contribution of say £17,500-£20,000 would ensure that your income tax threshold is at basic rate of 20%.

You should make the pension contribution payment in the tax year and before 5 Apr 2016 to avail the tax benefit and not wait for P60 as it would be too late for current tax year.

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 1 year ago.

Thanks my only outstanding questions are now

1) Is my new employers matching pension contributions irrelevant to my personal tax calculation situation - (or is it earned income) ?

2) Could my estimated taxable earning at my new company with my pension contribution of 7.5% could be better estimated once I know how the salary sacrifice situation in operation at my new employer seems to work - from a few payslips showing taxable earning growing throughout the months. (rough estimate given the salary is the same each month) - specifically if (3 below cannot be done)

3) Is my understanding of carry forward provision as follows still valid ?

"Carry forward provision allows you to carry forward unused annual allowance from the previous three years and catch up on contributions you may have missed. You could potentially invest up to £200,000 in this tax year (three years’ worth of £50,000 plus £50,000 for this tax year).

There are two conditions: First, in the same tax year you must have earned at least the amount you wish to contribute. Second, you must have been a member of a UK registered pension scheme in each of the tax years from which you wish to carry forward, even if you did not make contributions.Read more: http://www.thisismoney.co.uk/money/experts/article-2533299/Can-use-unused-allowances-pay-100k-pension.html#ixzz3el0C3ZbD

Follow us: @MailOnline on Twitter | DailyMail on Facebook"

ie Is this still valid to allow a more accurate calculation on using my unused annual allowance from next years P60, given earnings of £45K would be larger than my potential pension contribution eg £20K (approx) + (7.5% (ee) + 7.5% (ers)of £45K)

4) Is paying £20000 as you metiond gross to a pension - making a payment of £20000 or something less ie 20000 -40% or -20%

Once I am happy I understand these points it will help me work out my figures more accurately and I will be happy to complete your payment asap today.

Expert:  taxadvisor.uk replied 1 year ago.
Richard, thank you for your reply.

I will revert to you with a response later this evening.

Many thanks
Expert:  taxadvisor.uk replied 1 year ago.
Richard, thank you for your patience.

Here is my response to additional points raised by you -

1) Is my new employers matching pension contributions irrelevant to my personal tax calculation situation - (or is it earned income) ?

Answer – Your contributions into a pension scheme give you tax relief .. employers’ contributions are irrelevant for your tax relief.

2) Could my estimated taxable earning at my new company with my pension contribution of 7.5% could be better estimated once I know how the salary sacrifice situation in operation at my new employer seems to work - from a few payslips showing taxable earning growing throughout the months. (rough estimate given the salary is the same each month) - specifically if (3 below cannot be done)

Answer – I have based my recommendation on salary figures you have estimated

3) Is my understanding of carry forward provision as follows still valid ?

"Carry forward provision allows you to carry forward unused annual allowance from the previous three years and catch up on contributions you may have missed. You could potentially invest up to £200,000 in this tax year (three years’ worth of £50,000 plus £50,000 for this tax year).

There are two conditions: First, in the same tax year you must have earned at least the amount you wish to contribute. Second, you must have been a member of a UK registered pension scheme in each of the tax years from which you wish to carry forward, even if you did not make contributions.Read more: http://www.thisismoney.co.uk/money/experts/article-2533299/Can-use-unused-allowances-pay-100k-pension.html#ixzz3el0C3ZbD

Follow us: @MailOnline on Twitter | DailyMail on Facebook"

ie Is this still valid to allow a more accurate calculation on using my unused annual allowance from next years P60, given earnings of £45K would be larger than my potential pension contribution eg £20K (approx) + (7.5% (ee) + 7.5% (ers)of £45K)

Answer – The limit for current tax year is £40k. You should ignore employer contribution as the company gets corporation tax relief on its contribution. You could invest more than £40k provided you have unused allowance from previous 3 years (the annual allowance for tax year 2014-15 was £40k, 2013-14 was £50k and 2012-13 was £50k.

If you wait for your P60 that you will receive in May/Jun 2016, you would be in a new tax year and you would have already suffered tax at 40% on some of your earnings in the current tax year.

More information on tax on private pension contributions can be found here

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

4) Is paying £20000 as you metiond gross to a pension - making a payment of £20000 or something less ie 20000 -40% or -20%

Answer – you would pay 80% of £20k i.e. £16k and the taxman will top it up to £20k. Then when you complete your tax return you would claim the extra relief at that point.

Once I am happy I understand these points it will help me work out my figures more accurately and I will be happy to complete your payment asap today.

I hope this is helpful.

taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4939
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Expert:  taxadvisor.uk replied 1 year ago.
I thank you for accepting my answer.

Best wishes.

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