What should I do in a higher rate tax band?

Spinny

I am new to the website and I sense that I may have been very naive.

About 3 years ago I moved into higher rate tax band employment and my salary has increased since. I have assumed as I am employed that my tax requirements would be dealt with through the PAYE system and through normal banking routes for tax to be deducted. However beginning to go through threads I wonder if you could help:
1) Should I be claiming some sort of rebate on my pension - I assumed my employer would do this?
2) Should I be paying more tax on my savings?
3) Are there any earning bands I should be aware of?
4) Are there any cunning tips? Other than an ISA every year I'm not doing anything specific to deal with the higher rate tax band.

Thanks! I suddenly feel like through complete ignorance I'm on the wrong side of the law.

CLAPTON

how much do you earn
how much pension do you pay
what is the value of any benefits in kind (car, medical insurance etc)
how much interest do you earn on your savings (excluding ISAs)

00ec25

1. are you in a company scheme where your pension contributions are wholly deducted directly from your salary - in that case your employer deals with it through the PAYE system. If you are making pension contributions yourself from your net pay to a personal pension (ie you pay by cheque/standing order or DD etc) then you will need to make a claim for higher rate relief as this will not have been done by your personal pension provider

2. you must inform HMRC that you have "unearned" income from savings and any other sources of income outside your salary (I assume you have extra savings/investment income outside of an ISA). They will decide if you will need to do a tax return from now on or, if your extra income is <£2,500 pa, they may allow you to do a simple statement of income and will then adjust your tax code directly. Either way you must pay tax @40% on your non ISA income - ie simplistically you owe HMRC the difference between 40% and the basic rate tax on your unearned income.
any (company) benefits in kind you receive will be dealt with by your company via the PAYE(P11D) and your tax code should have already been adjusted by HMRC for that

3. only the new 50% rate

4. the more you put into a pension the more tax efficient it is - ie you get tax relief at 40% on the contributions and, assuming you are not mega rich, when you start drawing your pension you will probably only be a basic rate taxpayer so will have "saved" an extra 20% tax assuming basic rate remains at 20% and the advantageous pension treatment remains (current government has its eyes on this).
there are certain selective investment vehicles which are tax efficient for high rate payers but you really should see an IFA to get proper advice on those to understand the risks involved, remember no one on this public forum is legally able to give advice, they can only give opinions


all the above is of course subject to whether you are actually paying high rate tax because pension contributions can easily bring you back down to basic rate (a guide would be if >£65,000 gross pay then no doubt, below that you may need to check your options more carefully)

Spinny wrote: »

Thanks! I suddenly feel like through complete ignorance I'm on the wrong side of the law.

its trite but ignorance is no defence, if you are rich enough to pay high rate you should manage your affairs better :rolleyes: (don't take it personally)

Spinny

Thanks and I agree re ignorance hence thats why I asked.

However on the basis that my savings income is below £2500 then I dont think I do have a problem? My salary has been paying and overpaying a mortgage rather than saving for a while, so other than ISAs theres not been much left. I am considering an IFA but the only time Ive used them in the past I have been very disappointed and have usually got a better deal by shopping around on the internet.

jem16

Spinny wrote: »

However on the basis that my savings income is below £2500 then I dont think I do have a problem?

If you are a higher rate taxpayer then you should be paying another 20% on this £2500 so you would owe £500 in tax.

The questions that Clapton has asked are important to ascertain if you are a higher rate taxpayer or not.

Any

00ec25 wrote: »

1. are you in a company scheme where your pension contributions are wholly deducted directly from your salary - in that case your employer deals with it through the PAYE system. If you are making pension contributions yourself from your net pay to a personal pension (ie you pay by cheque/standing order or DD etc) then you will need to make a claim for higher rate relief as this will not have been done by your personal pension provider

Only 20% tax band gets dealt with through PAYE system. If you are in higher tax band then you have to ask for the extra 20% yourself.