New Tax Year, maximising Pension tax relief

Apr 06, 2005 2 Replies

I am a member of my company's GPP scheme.



My salary is 39,000 PA, age 37, so I pay some Higher Rate Income Tax (40%)



I want to make the exact contribution to this Personal Pension that attacts Tax Relief at 40%, when it falls to 22%, I'd rather ISA that money than tie it up in a Pension.



Googling shows me that the 2005/2006 PA is 4895



Remembering my FPC1/2/3, I reckon that I pay the following amount of Income Tax


4895 @ 0% = 0
2090 @ 10% = 209
30310 @ 22% = 6668.20
1705 @ 40% = 682

So, the slice of my salary that attracts 40% Tax is £1705.



I do an annual Tax return, so can someone finish off the maths and tell me the exact amount I should put into my Pension every month to maximize tax relief.



Thanks.


Watch out for anything which changes your tax band eg Gift Aid. I did a similar exercise once, because I thought that the whole contribution attracts relief at your highest tax. This was wrong; if your contribution takes you back to a standard rate payer you simply get relief of 22% on the amount under the threshold.

The 22% is recovered by the pension company soon after you contribute, the remaining 18% you recover from your self assessment tax return.

hth

Daytona

I do realize that you only get 40% relief on the portion that you pay

40% tax on. I want to know the exact figure that I should be contributing to my pension to achive this result before dropping back to 22% relief.

Again salary 39K, age 37.

Join the Discussion

Have something to add? Share your thoughts — no account required.

Didn't find your answer?

Ask the community — no account required