The 7 steps to achieving good tax outcomes Q&A

Last Updated: 14 Feb 24 10 min read


The M&G Wealth Technical team delivered an online technical event covering the 7 steps taken to calculate a UK individuals tax liability. These are the questions and answers from the live event.

Q. Do you have a past session on how pension contributions extend the tax bands please?

A. We have some good stuff on the tax year end hub or you could watch this webinar on the Golden Age of Pension Planning or read the knowledge page here.

Q. With my client who has a State Deferred lump sum of £100,000 if he makes a single lump payment to his pension could he get some allowance left.

A. In the RAS system it would extend his tax bands so could make him a basic rate taxpayer instead of a higher rate taxpayer and so on but would not increase the amount of personal allowance. You could theoretically create some personal allowance with a net pay contribution if it resulted on Net income being lower than the personal allowance

Q. Does drawing the State Pension Income result in you having a reduced AA ?

A. No, this is not flexibly accessing benefits so does not trigger the MPAA.

Q. Does tax-free cash from a DB scheme fall under recycling rules for a DC plan?

A. Yes it does.

Q. If a client has Pension income only of £12000 pa what is the max pension contribution he can make

A. £3,600 gross (pre 75)

Q. You mentioned State Pension deferral for a lump sum, which was interesting. I have a client who is still working but has a deferred SP with entitlement of £100,000. What did you mean by your statement that he could get it at nil rate?

A. Your lump sum is taxed at the highest marginal rate so if you have any personal allowance left you are 0%, if you have any basic rate band left you are 20% and so on.

Q. If someone has used the full LTA and takes a lump sum this tax year, will it be completely tax free (as not income and no LTA charge)? Of were such lump sums made taxable for this tax year with the 0% LTA charge change?

A. If you have no LTA left then any lump sum is taxed at marginal rate (instead of 55%).

Q. Nothing to stop you taking your PCLS to make say £60,000 pension contribution?

A. Nothing other than the tax free cash recycling rules.

Q. Why can't individuals get tax relief post 75?

A. That’s what the law says!  We can’t remember the policy intent. Suspect it’s a hangover from when everyone had to annuitise by age 75.

Q. A person attains age 75 in late May 2024. He has part-time employment income of £1000 gross a month. In early May 2024, before he attains age 75, may he pay a personal pension premium of £10000 gross (paid as £8000 net of BRT), or is he limited to £3600 gross (paid as £2880 net)?

A. Our understanding is the pension contribution can be based on the relevant earnings in the tax year you are 75 but must be made prior to 75th birthday.

Q. What about Salary Sacrifice?

A. This is giving up employment income so the total income included at Step 1 reduces giving marginal rate relief and reducing adjusted net income for other tax purposes.

Q. Are there still RAC's available to new entrants?

A. No, you can only add to existing contracts.

Q. Is PCLS classed as "income" but just tax exempt?

A. PCLS is not income for your income tax return but where taken regularly can be classed as income for “normal expenditure out income” purposes.

Reliefs and allowances matters

Q. Does the blind persons allowance extend the personal allowance?

A. No the allowances are separate. The personal allowance is dealt with under s35 of the Income Tax Act. The blind persons allowance entitlement is covered under s38. The blind persons allowance is not reduced by adjusted net income over £100,000 in the same way as the personal allowance.

Q. What is the impact of the marriage allowance?

A. The Marriage Allowance can be claimed where one non-taxpaying spouse or civil partner wants to transfer 10% of their personal allowance to their basic rate taxpaying spouse. This does not increase the personal allowance of the recipient. The benefit is given in the form of a reduction in their tax liability by up to  20% x £1,260 = £252.

Q. Can you carry back or make a request for Marriage allowance and recalculate prior years? Can you only get 20% relief - what if you are a higher rate tax payer?

A. You can backdate a claim for up to 4 tax years that you were eligible for Marriage Allowance. One of the criteria to be eligible is that the recipient does not pay tax at higher rate.

Q. Can the change of use of personal allowance be done in Wales?

A. Yes. Those resident in Wales are also able to offset their personal allowance against their income in the way which results in the lowest tax liability.

Q. If a client has a fairly standard tax situation - Employee, pension via employer, bit of bank interest, all investments ISAs, so no need for any self assessment - but, they make a charitable donation & tick the box for gift aid. Will this be automatic, or do they need to claim via self assessment.

A. If you are a higher rate taxpayer then need to notify HMRC to get higher rate relief. This can be done through self assessment or by contacting HMRC to ask them to adjust your tax code. Further details can be found at the following link.

Tax relief when you donate to a charity: Gift Aid - GOV.UK (

Q. If the bond gain takes income over £100,000 and the personal allowance starts reducing, does top slicing relief bring this personal allowance back? If not, can part of that bond gain be then paid into a pension to bring the personal allowance back?

A. There are a few different points to address in this question.

The personal allowance is reduced by £1 for every £2 of “adjusted net income” in excess of £100,000. Adjusted net income is reduced by the gross amount of pension contributions so if this results in adjusted net income being below £100,000, the personal allowance will be reinstated.

The source of funds for the pension contributions does not impact the tax calculation so the bond proceeds could be used to fund the pension contribution, assuming they had relevant earnings to support the contribution.

The top slicing calculation is a standalone calculation from the 7 steps calculation. In the top slicing calculation the bond gain is essentially taxed twice. The full gain is taxed to work out the “individual liability”. The slice is taxed to work out the “relieved liability”. The amount of personal allowance available in each part of the top slicing calculation is based on theoretical adjusted net income including the full gain for the first part and the slice only in the second.

Q. Can you send the information on how to change the order of the allocation of personal allowance please?

A. The link below explains more about the seven steps in the income tax calculation, including how beneficial ordering works.

Calculating Income Tax Liability | M&G Wealth Adviser (

Q. For Ed's situation, can he still take marriage allowance from his partner even if his net adjusted income is over £100k and therefore loses personal allowance

A. No. The Marriage Allowance can only be claimed where the recipient is not paying higher or additional rate tax.

Q. Does beneficial ordering allow personal allowance to be split up, e.g. £1k for interest, £1.5k for dividends, £2k for bonds, and the rest for salary?

A. Yes. The personal allowance can be offset in the way which delivers the greatest reduction in the individual’s tax liability. 

Other tax matters

Q. I think you said bond withdrawals don’t qualify for Total Income - is this just the 5% ?

A. Withdrawals from investment bonds are a return of capital. Where the withdrawals are within the tax deferred allowance no chargeable gain arises. Where withdrawals exceed the tax deferred allowance a chargeable gain arises. The excess chargeable gain is subject to income tax and will form part of total income but the amount of the withdrawal itself is not ignored.

Q. Which comes first, pension or rental income please?

A. We’re not sure it matters as long as any reliefs are deducted appropriately. We’ll have to defer to the accountancy profession here.

Q. Are share buybacks investment income? If so, do dividends rates and the dividend allowance apply?

A. Share buybacks are sometimes dividends and sometimes and sometimes capital gains. Where they are dividends the normal rates and allowances apply.

Q. How do you apply for Beneficial ordering relief?

A. HMRC’s online self assessment system takes beneficial ordering into account so will work out the best way to allocate the personal allowance.

Q. In the example of different tax for people with identical income, does the HMRC system when submitting tax return not automatically calculate tax based on beneficial order?

A. Yes.

Q. Order of tax - does capital gains come last (step 7)?

A. Capital Gains Tax is not technically part of the income tax computation so is not a tax charge added at step 7. It is reported separately. Your CGT liability will be based on the amount of basic rate band left after taxing all your income. With bond gains it is only the slice that is included as income for the purposes of your CGT calculations.

Q. Student loans and gains on bonds, can you explain the traps.

A. Our understanding is that student loans are not an allowable deduction for adjusted net income and the full amount of bond gains are included.

Q. Where do RSU's (Restricted Stock Units) sit on the Tax table?

A. RSUs are treated as specific employment income so we believe are included at Step 1.

Q.  I am not sure that Gift Aid donations are allowed as a deduction in computing Adjusted Income. I think its only gifts of shares, property, etc. Could you please clarify? Ta.

A. For tapered annual allowance adjusted income and the limit on income tax reliefs “adjusted total income” gift aid deductions are not allowed.   For “adjusted net income” they are. 

General matters

Q. Can we have a link for the budget webinar?

A. Budget webinar sign up is here -

Q. Do you have a session on bonds - gains- withdrawal options etc

A. This section of our Tech Matters site covers various aspects of bond tax. There are articles, Q&As and videos which look at the different withdrawal options and how gains are taxed. We will no doubt have a session on bonds at some point over the course of the year.

Taxation of investment bonds | M&G Wealth Adviser (

Q. My Client has a salary of £25000 pa plus some savings interest of £500 that will be taxable at 20% . Therefore approx. £25000 He as an onshore Bond Start date 23 11 11 initial investment £61,500 Current value £83,500 1000 segment You may recall we cannot fully encash the Bond because there is £55

A. Not a full question but when we get asked about tax the first answer is normally put it in the tax relief modeller which you will find in the tools and calculators section.

Q. How do I access the tech website?

A. If you are reading this you have found it!

The Tech Matters homepage can be found at the link below.

Tech Matters | Tech support for financial advisers | M&G Wealth (

Find us on LinkedIn

Sign up below where you will be the first to see any news, views or support we think matters. 

Sign up