Higher rate tax band - things to be aware of?

andybird123 · 23 Dec 2022 at 11:57

Freefaller said:
You can get stung if one of you earns over a certain amount (can't remember the figure), but it happened to me and had a massive HMRC bill which was worth more than the child benefits we go in the first place! I guess it depends on the OP's situation.

That's only if you fail to inform them, if you tell them before the deadline the you just pay back the amount, if they charged you more then it was a penalty/interest

Dirk Diggler · 23 Dec 2022 at 12:54

Draeger said:
I'm hopeless when it comes to tax rates and earnings. My question in relation to this is in my case, what figure do they base your tax band on? I say 'my case' because I retired from the fire and rescue service in 2021 after 32 years service and I receive an annual pension of just under £20k pa.

When I left the fire service - retired at just over 50 years old and didn't want to just stop working, I picked up another full time job using the skillsets I developed during my career and in that job I earn £38k gross pa.

So.......daft question time........do the HMRC add my £20k pa pension together with my £38k pa wage resulting in £58k pa and me being lumped into the 42% tax bracket? I don't think that is the case but I'm unsure.

I think the short answer is yes, it's counted as income. You can take 25% of your pension pot tax free, and I intend to do that as a lump sum when I'm 55 - I'm not sure what your options are now that your pot is paying out.

You should really be submitting a self assessment annually.

How much tax will I pay on my pension and how can I avoid it?

How you may be taxed on your pension income and how you can reduce your pension tax bill by taking advice. Discover more about tax on pensions here.

www.unbiased.co.uk

Mr^B · 23 Dec 2022 at 13:15

ci_newman said:
Its only added onto your tax code if you file a self assessment. If you dont do a SA, you'll end up with a hefty fine and late payment charge from HMRC

That's a good point - if you don't opt out of Child Benefit payments, you MUST register for SA to pay the charge.

It's been so long since I went SA that I forgot what it was like before, so thank you.

Richie · 23 Dec 2022 at 13:29

Dirk Diggler said:
That's not the question that was asked, unless @dLockers was referring to the £20k to £40k bracket when he said England has higher tax rates than Scotland?

Unless they respond to the question then I suppose we'll never know what they were on about.

It's not even the full £20-£40k bracket as it get to 21% around £25k

Dirk Diggler · 23 Dec 2022 at 13:42

Richie said:
It's not even the full £20-£40k bracket as it get to 21% around £25k

These are the current rates, and I'm not seeing how this can be interpreted as English residents paying more than Scottish residents - unless they're counting people on £27k or less, and at that level it's pennies.

EvilRob · 23 Dec 2022 at 13:45

Draeger said:
I'm hopeless when it comes to tax rates and earnings. My question in relation to this is in my case, what figure do they base your tax band on? I say 'my case' because I retired from the fire and rescue service in 2021 after 32 years service and I receive an annual pension of just under £20k pa.

When I left the fire service - retired at just over 50 years old and didn't want to just stop working, I picked up another full time job using the skillsets I developed during my career and in that job I earn £38k gross pa.

So.......daft question time........do the HMRC add my £20k pa pension together with my £38k pa wage resulting in £58k pa and me being lumped into the 42% tax bracket? I don't think that is the case but I'm unsure.

Yes, pension income is taxable income.
I'm assuming it's a defined benefit scheme rather than a defined contribution scheme, so you may have received some kind of tax free lump sum from the scheme when you retired. However, you won't get the 25% tax break on your normal pension income that the other posted described that can sometimes be arranged with defined contribution scheme.

uncle_rufus · 23 Dec 2022 at 14:43

This thread seems as decent a place as any to ask this - I'm having to do a SA tax return this year for the first time and trying to do some pre-emptive calculations now to work out if I need to drastically increase my pension contributions for the remaining months to avoid getting into trouble with the tax free childcare... Am I right in thinking what I need to do is:

Take each payslip for the year and record the gross amount minus any salary sacrifice (which includes my pension payments)... add on any interest/dividends gained from money in any other (non-ISA) accounts... And that's basically it? I can then attempt to project forward the remaining months and see how far north of the threshold I think I'm going to be and can adjust pension % or do a lump sum to bring it just slightly under?

Dirk Diggler · 23 Dec 2022 at 15:21

uncle_rufus said:
This thread seems as decent a place as any to ask this - I'm having to do a SA tax return this year for the first time and trying to do some pre-emptive calculations now to work out if I need to drastically increase my pension contributions for the remaining months to avoid getting into trouble with the tax free childcare... Am I right in thinking what I need to do is:

Take each payslip for the year and record the gross amount minus any salary sacrifice (which includes my pension payments)... add on any interest/dividends gained from money in any other (non-ISA) accounts... And that's basically it? I can then attempt to project forward the remaining months and see how far north of the threshold I think I'm going to be and can adjust pension % or do a lump sum to bring it just slightly under?

If you're on salary sacrifice then it will all be taken into account.

Example
- you earn £100k
- you pay £10k into your pension via salary sacrifice
- your P60 will show taxable pay as £90k
- all your payslips will show taxable pay as (pay - salary sacrifice)
- you will enter £0 for pension contributions on the self assessment form

Iamzod · 23 Dec 2022 at 16:51

LOAM said:
How far over 50k and what are your pension contributions doing to the figure that will end up on your P60?

I've no idea what the final figures will be, a large chunk of my pay is commissions so it's different every month.

I've gone from averaging about £2 - 2.2k a month before tax to having a wildly fluctuating pay pre tax of £4k - £7k, i've never had to deal with this kind of stuff before.

It's all PAYE if that matters.

dlockers · 23 Dec 2022 at 17:11

Iamzod said:
I've no idea what the final figures will be, a large chunk of my pay is commissions so it's different every month.

I've gone from averaging about £2 - 2.2k a month before tax to having a wildly fluctuating pay pre tax of £4k - £7k, i've never had to deal with this kind of stuff before.

It's all PAYE if that matters.

What's your tax code? If it's on a Month 1 basis you may be owed money back.

You can always estimate and keep some money spare, and then pay via debit card into your pension once you've received your P60/final payslip/know your exact values.. You'll then claim any tax back via SA and it's paid super quick.

dlockers · 23 Dec 2022 at 17:15

Dirk Diggler said:
These are the current rates, and I'm not seeing how this can be interpreted as English residents paying more than Scottish residents - unless they're counting people on £27k or less, and at that level it's pennies.

This doesn't show the loss of the tax free allowance over 100k in the UK (unsure if Scotland has the same system) and doesn't show the 45% rate at the new 125k limit.

Iamzod · 23 Dec 2022 at 17:33

dLockers said:
What's your tax code? If it's on a Month 1 basis you may be owed money back.

You can always estimate and keep some money spare, and then pay via debit card into your pension once you've received your P60/final payslip/know your exact values.. You'll then claim any tax back via SA and it's paid super quick.

My tax code is 1257L

Dirk Diggler · 23 Dec 2022 at 17:33

dLockers said:
This doesn't show the loss of the tax free allowance over 100k in the UK (unsure if Scotland has the same system) and doesn't show the 45% rate at the new 125k limit.

It's the same in Scotland for £100k+

Dirk Diggler · 23 Dec 2022 at 17:35

Iamzod said:
My tax code is 1257L

This is irrelevant, that's just the tax office assuming that you are due the standard basic relief.

Surely your payslip shows what your taxable pay to date is?

As for the advice above about paying money into your pension when you receive your P60 - that won't work as it's too late by that point; the tax year will be over

dlockers · 23 Dec 2022 at 17:57

Dirk Diggler said:
This is irrelevant, that's just the tax office assuming that you are due the standard basic relief.

Surely your payslip shows what your taxable pay to date is?

As for the advice above about paying money into your pension when you receive your P60 - that won't work as it's too late by that point; the tax year will be over

It isn't irrelevant if he's on a M1 code as he'd be paying tax without consideration for his yearly earnings.

Depends on when you get your P60. I get mine with my last payslip so I can pay before the tax year.

Dirk Diggler · 23 Dec 2022 at 18:26

dLockers said:
It isn't irrelevant if he's on a M1 code as he'd be paying tax without consideration for his yearly earnings.

Depends on when you get your P60. I get mine with my last payslip so I can pay before the tax year.

What's the advice you're giving, that they should wait until the last week of the tax year and decide whether to send a few grand to their pension company in order to claim a portion back via self assessment and keep themselves below the £50k threshold?

It doesn't sound very feasible.

Iamzod said:
I've just come across this thread & it's left me a little concerned. Back in April I got a drastic increase in pay (300%) & i've noticed comments here about child tax credit having to be paid back, am I looking at getting a bill here?

Have a look at the taxable pay to date on your December payslip, divide that sum by 9 and then multiply by 12. That's the best estimate of your likely end of year figure.

If you're shooting miles past £50k then you might need to accept that you're going to be paying the child benefit back.

EvilRob · 23 Dec 2022 at 18:30

Dirk Diggler said:
What's the advice you're giving, that they should wait until the last week of the tax year and decide whether to send a few grand to their pension company in order to claim a portion back via self assessment and keep themselves below the £50k threshold?

It doesn't sound very feasible.

Why not? Sounds good to me. I did something similar last tax year and will do the same this one. Much better to make decisions once you actually know the numbers instead of guessing if you can.

dlockers · 23 Dec 2022 at 18:34

Dirk Diggler said:
What's the advice you're giving, that they should wait until the last week of the tax year and decide whether to send a few grand to their pension company in order to claim a portion back via self assessment and keep themselves below the £50k threshold?

It doesn't sound very feasible.

It's totally feasible - I spent ages trying to calculate what I thought I'd owe but had a similar issue with hugely variable pay. I ended up with bad maths and owed 1700 more. I did a quick transaction to pay 1700 then filled out my SA. I then realised how godly simple that was versus the manual method and HMRC refunded my tax within about 6 days.

Obviously OP should tot up gross to get an idea before they hit that period but it works fine.

Dirk Diggler · 23 Dec 2022 at 18:45

EvilRob said:
Why not? Sounds good to me. I did something similar last tax year and will do the same this one. Much better to make decisions once you actually know the numbers instead of guessing if you can.

Because if they've earned £60k then they might not have £10k to throw at their pension and they might not want to even if they did have the cash to do it.

EvilRob · 23 Dec 2022 at 18:54

Dirk Diggler said:
Because if they've earned £60k then they might not have £10k to throw at their pension and they might not want to even if they did have the cash to do it.

Lol. You can estimate roughly what it's going to be and put that aside, then top up/keep some depending what the final calc is. If you can't afford to put it aside then you can't make monthly increased contributions in the first place.
I agree with dLockers, much easier to true up after the final pay check.