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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I expect (by the time we get to 5 April) my total income

Customer Question

Hi,
I expect (by the time we get to 5 April) my total income for 2015/16 to be £124k on which I'll have paid tax (PAYE) of £40k.
As this obviously takes me beyond the point at which my personal allowance is gone completely, I'l looking at an additional tax charge of around £4k.
However, to avoid this I'm thinking of making a one-off pension contribution and wanted to double check my calculations:
Income - £124,000
Pension Contribution - £19,250 (grossed up to £24,062.50)
Adjusted Net income = £99,937.50
Income Tax calc=
£10600 @ 0% = £0
£31,865 @ 20% = £6373
£57,472.50 @ 40% = £22,989
Total Tax liability = £29,362
And here we get to the question... does that mean I'd be due a tax refund of £10,638 or does this get adjusted by the value of 20% tax 'relief at source' which my SIPP provider will claim on my behalf?
Thanks in advance
Submitted: 10 months ago.
Category: Tax
Expert:  TonyTax replied 10 months ago.
Hi. Let me take a look at this and I'll get back to you.
Expert:  TonyTax replied 10 months ago.
As you will read here, your adjusted net income is your income less grossed up pension contributions so you need to get your adjusted net income to £100,000 or less to avoid losing any of your personal allowance:https://www.gov.uk/guidance/adjusted-net-incomeThe SIPP provider will claim back £4,812.50 in basic rate tax relief into your SIPP.As for your tax position, as you have had basic rate tax relief at source, you extend the basic rate tax band of £31,785 by the gross pension contribution to effect the additional tax relief through the self-assessment tax system. If you didn't extend the basic rate tax band, you would get tax relief at 60%.I hope this helps but let me know if you have any further questions.
Customer: replied 10 months ago.
Thanks, ***** ***** doesn't answer my question... what I wanted to know was whether I'd be able to claim a tax refund of £10,638 or £5,825 (based on the details set out)
Expert:  TonyTax replied 10 months ago.
Can you tell me how much tax you will have paid on your salary by the end of the tax year on 5 April please
Expert:  TonyTax replied 10 months ago.
The total tax relief on a gross contribution of £24,062.50 will be £9,625. Of that, half will go into your SIPP directly from the tax office and the balance of £4,812.50 will be reflected in your self-assessment so if the correct amount of tax had been deducted from your salary, you will be overpaid by £4,812.50.
Customer: replied 10 months ago.
By 5 April I'll have paid £39.983.40 in tax
Expert:  TonyTax replied 10 months ago.
Thanks. According to my calculations, you will be overpaid by £5,792.40 if you make a pension contribution of £19,250 net of basic rate tax relief.
Expert:  TonyTax replied 10 months ago.
Hi.
I'm just following up to find out if my answer helped or if you have any further questions.

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