There is no fixed "extra 25%". The gross pension contribution of £37.5k increases your basic rate band making more income taxable at 20% and less at 40% (slightly different if Scottish resident for tax purposes).
That may come out broadly as an £7.5k tax saving but it all depends on how much higher rate tax you would be liable at. There is a misconception that being a higher rate payer entitles you to the "extra 25%". But you may have only paid higher rate tax on £1.
Regarding the error in gross vs net in my OP, just to make sure I understand this now, is this correct:
You earn £100k and you wish to contribute £30k (net- ie actual cash leaving your bank account) to your pension.
Of this £30k, HMRC will add an extra 25% to your pot, so your pot will now have £30k + 25% * £30k = £37.5k.
Because you are in the 40% tax band, you will be eligible to receive an extra 25% of the £30k (£7.5k) back as well, but this will not be added to your pot, you will receive it as a tax refund.
To conclude: paid £30k net, pension pot = £37.5k, receive £7.5k refund.
Thanks for this- I just want to make sure I understand it fully. In other words, I want to understand exactly what the difference is between 'adjusted net income' and 'income for tax purposes'.
Your 'income for tax purposes' is...well, whatever your gross income is. It is this that determines the tax band you are in. Things like pension contributions do not impact your tax bands. If I earn £160k gross but pay (gross) 20k to a pension, I remain an additional rate taxpayer, it is just that I get the extra tax back.
Whereas pension contributions DO impact your 'adjusted net income'.
And your personal allowance is based on your 'adjusted net income', not your 'income for tax purposes'.
Am I correct, or am I barking up the wrong tree again?
Thank you Basil for your detailed answer. Congratulations on spotting my deliberate mistake regarding gross and net :)
In conclusion, regardless of the specific figures, the gross pension contribution would indeed be netted off my gross income before calculating the personal allowance I get.
Thanks, that all makes sense now. I was confused- b+b rules don't mean there is zero CGT, rather that the sale is matched against a different purchase than normal.
You keep mentioning s104(3)(ii) - what is this please? Section 104 of what?
Haha yes, I'm aware that I need to pay income tax on the income- using the exchange rate on the day I received the crypto- that is not in doubt. What I am querying is the additional CGT impact. Specifically, whether there is any, if I sell the same day.
"I don't pretend to be an expert in crypto, but if you sold it the same day it was purchased, it had the same value, then there's no gain."
I don't think this is quite correct? There is no gain but not because the value is the same, but because CGT does not apply if you receive and then sell in the same day, as per bed and breakfasting rules. I think? In other words- if I received crypto and then an hour later it doubled in value and then I sold it, there would still be zero gain. As long as I sold it within 24 hours.
"On the CGT question, s104(3)(ii) is likely on point."
What is this a reference to? Sorry for being a dumb dumb.
My answers
This makes perfect sense, thanks!
Regarding the error in gross vs net in my OP, just to make sure I understand this now, is this correct:
You earn £100k and you wish to contribute £30k (net- ie actual cash leaving your bank account) to your pension.
Of this £30k, HMRC will add an extra 25% to your pot, so your pot will now have £30k + 25% * £30k = £37.5k.
Because you are in the 40% tax band, you will be eligible to receive an extra 25% of the £30k (£7.5k) back as well, but this will not be added to your pot, you will receive it as a tax refund.
To conclude: paid £30k net, pension pot = £37.5k, receive £7.5k refund.
It cost you £22.5k to add £37.5k to your pension.
Is this correct?
Thanks for this- I just want to make sure I understand it fully. In other words, I want to understand exactly what the difference is between 'adjusted net income' and 'income for tax purposes'.
Your 'income for tax purposes' is...well, whatever your gross income is. It is this that determines the tax band you are in. Things like pension contributions do not impact your tax bands. If I earn £160k gross but pay (gross) 20k to a pension, I remain an additional rate taxpayer, it is just that I get the extra tax back.
Whereas pension contributions DO impact your 'adjusted net income'.
And your personal allowance is based on your 'adjusted net income', not your 'income for tax purposes'.
Am I correct, or am I barking up the wrong tree again?
Thank you Basil for your detailed answer. Congratulations on spotting my deliberate mistake regarding gross and net :)
In conclusion, regardless of the specific figures, the gross pension contribution would indeed be netted off my gross income before calculating the personal allowance I get.
Thank you!
And yes no doubt professional advice is wise :)
Thanks buddy, that is just the link I was looking for :)
Thanks, that all makes sense now. I was confused- b+b rules don't mean there is zero CGT, rather that the sale is matched against a different purchase than normal.
You keep mentioning s104(3)(ii) - what is this please? Section 104 of what?
Haha yes, I'm aware that I need to pay income tax on the income- using the exchange rate on the day I received the crypto- that is not in doubt. What I am querying is the additional CGT impact. Specifically, whether there is any, if I sell the same day.
"I don't pretend to be an expert in crypto, but if you sold it the same day it was purchased, it had the same value, then there's no gain."
I don't think this is quite correct? There is no gain but not because the value is the same, but because CGT does not apply if you receive and then sell in the same day, as per bed and breakfasting rules. I think? In other words- if I received crypto and then an hour later it doubled in value and then I sold it, there would still be zero gain. As long as I sold it within 24 hours.
"On the CGT question, s104(3)(ii) is likely on point."
What is this a reference to? Sorry for being a dumb dumb.