Redundancy & tapered personal allowance

[Sixtyone]

I will be made redundant in January and it looks like my income for the tax year will be approx. £120k, this is after taking into account pension contributions including carry forward from previous years and the 30k tax free.
So this means I will lose most of my personal allowance and be subject to 60% tax on the 100-120k bit.

I know you can exceed the £60k Annual Allowance limit and are then taxed on the excess; but would the excess be 40% or 60% tax ?

Basically I'm trying to understand if it would be beneficial to put 20k into the pension; this of course will bring up other questions; what tax will I pay when withdrawing etc. But I want to understand the excess bit first.

So maybe this is just a nonstarter.

[Charlottesquare]

I will be made redundant in January and it looks like my income for the tax year will be approx. £120k, this is after taking into account pension contributions including carry forward from previous years and the 30k tax free.
So this means I will lose most of my personal allowance and be subject to 60% tax on the 100-120k bit.

I know you can exceed the £60k Annual Allowance limit and are then taxed on the excess; but would the excess be 40% or 60% tax ?

Basically I'm trying to understand if it would be beneficial to put 20k into the pension; this of course will bring up other questions; what tax will I pay when withdrawing etc. But I want to understand the excess bit first.

So maybe this is just a nonstarter.

"So this means I will lose most of my personal allowance and be subject to 60% tax on the 100-120k bit." is misleading, the loss of the PA itself effectively makes the rate on the £20,000 60% rather than loss of PA and 60% on the £20,000, as your post implies.

[Seasider]

I am not sure if this helps
https://www.gov.uk/hmrc-internal-manual ... /ptm056110
On the face of it it says the excess pension contribution is taxed at 20%, 40% or 45% depending on your tax bands but I guess the real question is whether the excess contribution gets deducted from your income for working out the taper of your personal allowance. The example seems to assume you already know your personal allowance when you work out your reduced net income. I have to admit I rather assume the whole pension contribution including the excess over the annual allowance is deducted to work out the reduced net income and that the personal allowance should be based on that figure but it does not say so.

It may make a difference whether you pay into a personal pension scheme or not. There is stuff in the manual about increasing the basic rate and higher rate thresholds where the contribution is to a personal pension scheme but I do not know if that increase carries through to the tapering of personal allowances.

If you do self assessment online I suppose you could always try putting in some figures to see what the calculation says? As long as you don't press send.

PS when you talk about carrying forward I assume you mean carrying forward unused annual allowance from the last three tax years.

[Sixtyone]

If you do self assessment online I suppose you could always try putting in some figures to see what the calculation says? As long as you don't press send.

PS when you talk about carrying forward I assume you mean carrying forward unused annual allowance from the last three tax years.

I’ll give the self assessment idea a go, although I have already submitted this years so don’t know if it will let me play.

Yes by carry forward I meant the unused allowance for the previous 3 years.

I found this link on another forum
https://www.mandg.com/pru/adviser/en-gb ... -allowance

‘In simple terms, the amount of the annual allowance excess is added to the top part of the person’s taxable income. This is purely to find the tax rate to use for the charge. It is not treated as income for calculations of other tax implications ie it will not lead to a high income child benefit tax charge or loss of the personal allowance etc.’

[Seasider]

Not totally on point but I found this

https://adviser.royallondon.com/technic ... ributions/

[Seasider]

Actually the article has a link to a Tax Manual page which suggests your idea might work.

[Sixtyone]

Actually the article has a link to a Tax Manual page which suggests your idea might work.

Sorry Seasider which link are you referring to ?

I've looked at so many links now I'm going around in circles.

[Seasider]

Sorry its the one that gets you here
https://www.gov.uk/guidance/adjusted-net-income
What I am thinking is that it says deduct gross pension contributions ie before tax relief. That would surely cover your extra £20k contribution.