Help needed please

WaxiesDargle

Hi

I am due to receive nearly £33,000 from a pension scheme lump sum, they didn't pay me enough when I retired in 2006!

This is £28,425 with £4548 interest (over 3 years) Now, I started a new job 7 months ago earning £22,000 and this still keeps me under the 40% tax threshold even with my monthly pension payments (£21000 a year)

I have been told I was put on the wrong payscale in my new job...and they are going to increase my salary from £22,000 to £ 24000 including 7 months back pay....nice..I think!

With this extra £2,000 increase it will mean that I will go over the 40% tax threshold.

With this back pay going back 7 months, this will mean that my salary over the last 7 months and part of the £4538 interest on my lump sum will also be taxed at 40% so I will have to pay that back

I am trying to work out if it is worth the increase in salary with the addition tax that I will have to pay on my pension/pay income, the interest on the £4538 and the interest on the £33,000 savings that I will have shortly

confused? I don't blame you...so am I

fengirl_2

Your salary increase must be worthwhile as there is no 100% tax rate. If you take the £2000 salary increase as your top slice of income, you will pay £800 tax on it as against £400 in a 'normal' year. You are still better off.

JimmyTheWig

Agree with fengirl. The worst case is that you'll be £1200 better off with the increase than you would be without it.

Remember that income tax rates only apply to the portion of your income in the bracket.
So if you earn £1 over the 40% limit you will pay 40% on that £1 and 20% tax on the rest (other than the tax-free allowance, on which you won't pay anything).

WaxiesDargle

Fengirl

Thanks

thats ok just for the salary... as I am bound to better off as you say

but if I have to pay back 7 months tax on the interest on the the £4548 and in the future pay 40% tax on the interest from the £33,000...

I was wondering if my wage gain would be countered by the above debits

Ps just read Jimmy's post...all clear now