How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4668
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

I am retiring in January and would normally be a higher rate

This answer was rated:

I am retiring in January and would normally be a higher rate tax payer. Consequently, my pension contributions this tax year have been been grossed by 40%. However, as I'm retiring mid-year my earnings will not put into the higher tax rate bracket. Will any pension withdrawals I make be count towards my income for this tax year so I can become a higher rate tax payer and ensure my pension contributions for this year to date remain grossed up at 40%?

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

I am slightly confused by your question and your reference to grossing. Could you please expand on that section of your query?.

Customer: replied 3 months ago.
Apologies for my muddled question...
My pension contributions made through my employer are made prior to tax (which is assumed to be at 40% by the tax man as I've been a higher rate tax payer for a number of years). Because I'm retiring in January, my salary this year will not make me a higher rate tax payer so my pension contributions for this year will only be at 20% and not 40%. I will need to take some money from my pension for the rest of this year. Does the money I take from my pension count towards my earnings from the year such that it can push me into the 40% tax bracket (so the contributions I've made attract 40% rather than 20%)?

Pension contributions are made to the pension provider, usually an insurance company, net of basic rate tax (20%). The insurance company then claims the 20% from HMRC. If the contributor is a higher rate taxpayer then they obtain their 40% relief through their annual self assessment tax return. When your pension pot comes to fruition at your retirement 25% of that is tax free. Any pension drawn is liable to Income Tax (IT) at your marginal rate of tax. This might push you back into the higher tax bracket.

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

Customer: replied 3 months ago.
for any this tax year, will my taxable income be based on the sum of my earnings and the pension I withdraw (accepting that 25% of the pension withdrawals will be tax free as I'm not taking any tax free lump sum)?

Correct.

bigduckontax and other Tax Specialists are ready to help you

Thank you for your support.