Anyone know a bit about tax?

[mennypennies]

I'll be as succinct as possible.

DH earns £34600 pa (he pays £382 tax, £234 NI, £187 pension per month).

He has been given the opportunity to take a wind-up pension payment from an old pension of £9530.15. 25% will be tax free, the other 75% will be taxed at 20%. (so £7147.61 will be taxable)

My question is, would this take him into the 40% tax bracket, or do you subtract pension contributions, as they aren't taxable, taking him just under?

You need to calculate his taxable income, which excludes pension contributions.

Does it matter if that last little bit attracts 40% tax rather than 20%? It will only be the earnings above £41450 (assuming he has a standard tax code) which will attract the 40%.

Really? Ahhh! I thought that all of it is at 40%!

(thanks very much, btw)

Nope, just the extra bit at 40%.

Think what happens when you go from earning under 9440 (0% tax) into the 20% tax bracket - does everything suddenly become taxed at 20%? Nope, you keep yout tax free allownace. Same at the 40% level - you keep everything below that as is, and it is just the amount over the limit which attracts the hogher rate.