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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am retiring in January and would normally be a higher rate

Resolved Question:

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%?
Submitted: 22 days ago.
Category: Tax
Expert:  bigduckontax replied 22 days ago.

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 22 days 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%)?
Expert:  bigduckontax replied 22 days ago.

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 22 days 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)?
Expert:  bigduckontax replied 22 days ago.

Correct.

bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 22 days ago.

Thank you for your support.