Hi,
I'm a little confused how pensions work in relation to tax, as I have just started a pension last tax year.
My earning are through a company so I pay corp tax, then set my wage at below the threshold for the higher tax band on dividends, which is £32,010 plus 10%, plus my personal allowance, which gives me £41540 a year before the higher rate on dividends kicks in (32.5%)
If I am investing an additional £5,000 a year in a pension, does this make my earnings as £46540 thus taking me £5000 into the 32.5% dividend rate.
Or is the pension contribution treated as non taxed income, thus my real earnings are still seen as £41540, with a non taxed additional £5,000 I have put into a pension.
I know the government adds 20% already to pensions, but I'm wondering if there is a benefit in the way I have described.
Any help appreciated,
Thanks, Phil
I'm a little confused how pensions work in relation to tax, as I have just started a pension last tax year.
My earning are through a company so I pay corp tax, then set my wage at below the threshold for the higher tax band on dividends, which is £32,010 plus 10%, plus my personal allowance, which gives me £41540 a year before the higher rate on dividends kicks in (32.5%)
If I am investing an additional £5,000 a year in a pension, does this make my earnings as £46540 thus taking me £5000 into the 32.5% dividend rate.
Or is the pension contribution treated as non taxed income, thus my real earnings are still seen as £41540, with a non taxed additional £5,000 I have put into a pension.
I know the government adds 20% already to pensions, but I'm wondering if there is a benefit in the way I have described.
Any help appreciated,
Thanks, Phil