David Spencer

Can I please clarify a simple scenario. If in a year someone has already earned 109,999 as PAYE income and wishes to preserve the full tax free allowance, how much would they need to contribute to a private pension before tax year end to affectively earn £99,999 for the year? Is it £8,000 or £6,000? I assume the former, as the additional relief is claimed back from self assessment. Is that correct?

Also, a follow up question - if the tax relief is given by extending the basic rate band, in the scenario I outline, does the additional pension contribution still have the effect of reducing the income for the year to £99,999 and hence the full tax free allowance remains in place? Even though the person would have received £108,332 of actual income? many thanks

Hi, can I please clarify - taking the above example let's assume the person's income for the year is £108,332. This person wishes to reduce their income/earnings for the year under 100k to avoid the 60% tax trap and loss of benefits. In order to do that and make the income for the year £99,999, if the person paid into their workplace pension before tax (salary sacrifice), they elect to contribute £8,333 extra through whatever extra % of their salary that is. Job done. If they have already been paid £108,332 and wish to reduce income under 100,000 by contributing to a private pension, they must contribute £6,666 (£8500 -20%) from post tax salary NOT £5,000. That's correct? If correct, the person then claims 40% relief through (a) 25% bump on the £6,666 by pension provider, and (b) 20% text credit back on self assessment on £8,333 so an additional £1,666.60, added to the £1666.60 from the pension provider, totals £3,333.20. Is that also right?