I'm struggling to understand pensions rules. I earn 40k As a full time employee and this year I did a freelance project that will be paid soon for an extra 7k.
To avoid 40% tax on the final 4K, this is my logic- make a 4K contribution to my SIPP, to which 800 basic tax relief will be added.
on my self assessment, include the 4K pension contribution, which will give me 800 additional tax relief, reducing my tax liabilities on that 4K to 800, or 20% rate. I'd then pay 20% as standard on the other 43k I earned that year.
is that right?
And then since I have paid all my auto enrolments up until now as 20% tax relief, on my self assessment can I then claim an additional 20%? It's a relief at source scheme at work.
Thanks in advance.
Replies (5)
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I'm not sure why you would expect any personal tax adviser, probably up to their neck in tax returns for paying clients, to provide free tax advice.
Then again there might be some kind soul out there twiddling their thumbs.
Oh Jesus. I was going to have a go, but then I realised that not all the information is there.
You do not quite have the stick by the correct end.
You need to tell us how much you will pay into your employer pension scheme for the year, only your bit, ignore the employer element.
Also, if you pay £4,000 into a SIPP, £1,000 basic rate relief will be added, not £800. The £4,000 is considered net and is grossed up to £5,000 (£4,000 /80 x 100).
There are other things wrong with your statement but there is no point going into that until you come back with the other pension contributions.
Stick 4K in the pension and spend the other 3K on a last minute accountant to sort your return out and you'll have no tax to pay at all.
(maybe)