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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4357
Experience:  FCCA FCMA CGMA ACIS
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I am earning £110,000 of which £50K is salary and the £60K

Customer Question

I am earning £110,000 of which £50K is salary and the £60K is dividends. My wife earns £40K base and £30k dividends. She also has rental income of £18,000 pa in her own name. We are paying quite a chunk of tax through PAYE as well as twice a year through self assessment. Our accountant suggested we get some advice on being more tax efficient (its not his area of expertise) so for example can we pay direct into a pension scheme (we are not over the limit on funds) from dividends, or salary sacrifice? we would then reduce our earnings, save tax and put some savings away into the pension, and get some tax relief back? Appreciate your view on this please
Submitted: 23 days ago.
Category: Tax
Expert:  bigduckontax replied 23 days ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Pension contributions are a most effective method of tax reduction. Current rules allow you to put 40K per annum or 100% of salary, whichever is the less. If you use a SSIP you can go back three years to mop up unused contributions. Rental Income and Dividends do not form part on income against which pension contributions can be offset.

I do hope that you have found my reply of assistance.

Customer: replied 23 days ago.
Whats a SSIP?
Expert:  bigduckontax replied 23 days ago.

Sorry for the typo, I meant a SIPP [Self invested Personal Pension]! You can read all about them here:

https://www.moneyadviceservice.org.uk/en/articles/self-invested-personal-pensions

Customer: replied 18 days ago.
Hi Keith
Sorry for the delay in getting back. I understand the basic rules, what I am after is actual income advice, so for example, can I pay the dividends or salary into a pension pre tax (salary sacrifice?), if I take the income from property, could that go direct into a pension, which would reduce our income tax bill, so in real terms be much better off. How much better would I be if I could drop my earnings below £100k so that I regain my personal allowance?I think the scope of these questions may well be outside what can be covered in this forum, but let me know?
Expert:  bigduckontax replied 18 days ago.

Pension contributions by you will reduce your taxable income. Remember that if you are mopping up earlier year levels then prior years computations will be affected. If you can reduce your taxable income below the 100K level then the Personal Allowance (PA), currently 11.5K, will reappear and reduce your tax liability further.

Have I covered everything?