Paying into a defined pension scheme to reduce tax band from 40% to basic 20%
Mr A has made a capital gain of £320k
Mr A is a 40% tax payer therefore CGT would be payable at 28% but Mr A would like to pay CGT at 18% by making his employment income only subject to 20% tax.
What he intends to do is pay salary subject to 40% band into pensions before his employer pays his monthly salary (salary exchange or smart pension), this way his taxable income is reduced through PAYE.
Please advise me on the below calculations.
Capital Gain 320,000
CGT at 28% 89,600
CGT at 18% 57,600
Gross Income 80,370
Pension contribution 39,200
Revised Gross Income 41,170
Personal Allowance 10,600
Benefit in Kind 891
Revised Personal Allowance 9,709
Taxable Income 31,461
Tax calculations Basic rate 20% @ 31,461 = 6,292.20
Higher rate 40% @ 0
National insurance NI PA 8,060.00 = 0
NI at 12% 33,110.00 = 3,973.20
NI at 2% 0.00 = 0