Reaching higher tax threshhold and best decisions

kiloton

Hi. I am earning £49000 and planned to earn interest on savings to take me up to around £50270. One thing I have just come across is paying back percentage of child benefit if earning more than £50000. Why is there a difference between that threshold and the tax threshold of 50270? So I would be paying back 2% of child benefit as it’s 1% for every £100 over £50000.

Any other advice would be welcome on paying less tax at this level as I am sure I will be getting pay raise soon. ISA will be full for next tax year. 

I believe if I did get a pay raise to £55000 and all that I cotta money went into pension I am still over the threshhold. Sorry for my naivety 😊

Thanks

SiliconChip

The good news for you is that in the recent budget the Chancellor announced that the High Income Child Benefit Charge threshold would increase to £60,000 from 6th April 2024.

https://www.gov.uk/government/publications/changes-to-the-high-income-child-benefit-charge/information-on-changes-to-the-high-incomechild-benefit-charge

kiloton

Ah, that’s great. I had read it a while ago and thought that it would all be taken if reached £60000. Thank you

Albermarle

kiloton said:

Ah, that’s great. I had read it a while ago and thought that it would all be taken if reached £60000. Thank you

The change was announced in the budget.

Budget 2024: key points at a glance | Budget 2024 (spring) | The Guardian

Yorkie1

kiloton said:

Hi. I am earning £49000 and planned to earn interest on savings to take me up to around £50270. One thing I have just come across is paying back percentage of child benefit if earning more than £50000. Why is there a difference between that threshold and the tax threshold of 50270? So I would be paying back 2% of child benefit as it’s 1% for every £100 over £50000.

Any other advice would be welcome on paying less tax at this level as I am sure I will be getting pay raise soon. ISA will be full for next tax year. 

I believe if I did get a pay raise to £55000 and all that I cotta money went into pension I am still over the threshhold. Sorry for my naivety 😊

Thanks

You should check your taxable pay rather than your gross salary, as that is what is relevant when deciding whether you are a higher rate tax payer. (Plus any other income such as taxable savings etc)

Pension contributions can be used to bring your tax liability down if you are near a boundary.

kiloton

So of the £49000 salary, £178 is paid into workplace pension by myself. Employer contribution is £106.  Does that mean that instead of looking at £1270 taking me into higher tax band, I should be looking at approx £4682 because, minus the pension contributions it takes my real income down to £45588?

Dazed_and_C0nfused

kiloton said:

So of the £49000 salary, £178 is paid into workplace pension by myself. Employer contribution is £106.  Does that mean that instead of looking at £1270 taking me into higher tax band, I should be looking at approx £4682 because, minus the pension contributions it takes my real income down to £45588?

Your figures make no sense.  Are you missing a monthly somewhere?

And you definitely cannot deduct employer pension contributions.

What method is used for the £178 you claim to have paid?

Relief at source
Net pay
Salary sacrifice 

kiloton

Sorry. Not exact figures. Just trying to get the taxable income as I assume pension is not taxable income? The £178 is paid monthly. Employer pays £106 monthly. Total paid into pension per month the is £284. Times 12 is £3408. So 49000 salary - 3408 = 45952 income? 

Dazed_and_C0nfused

kiloton said:

Sorry. Not exact figures. Just trying to get the taxable income as I assume pension is not taxable income? The £178 is paid monthly. Employer pays £106 monthly. Total paid into pension per month the is £284. Times 12 is £3408. So 49000 salary - 3408 = 45952 income? 

Not for tax purposes no.

You cannot employer contributions.

You also cannot deduct relief at source contributions (where the pension company adds 25% to what you hand over).  Although these have different advantages which can give the same end result.

And you cannot deduct salary sacrifice either as they are actually employer contributions Although by sacrificing some salary you have a lower taxable income to start with.

Until you establish which method is being used you won't be able to progress this.  And it's something you really would be better of understanding anyway.

Kirkmain

What do you do? Is it possible to render some of your services via a ltd company and pay dividends to your spouse who you allocate as a director? So instead of paying 42% tax (40% income +2% NI), you only pay 27.75% (19%corporation tax + 8.75% basic rate dividends tax)

Phoenix72

Malale said:

Your idea of raising your salary and investing in your retirement sounds reasonable. As well as investing in an ISA and pension, it is also worth considering other ways of minimizing tax, such as using Personal Pension Contributions, tax relief on housing and health expenses, and investing in shares or other assets that may offer the opportunity for tax deductions or benefits.

"Tax relief on housing and health benefits" Care to expand exactly what you mean?