How to reduce tax

evoscott

I reckon I earn 45 k plus a year depending on commission so this should put me 50 percent tax . my company ofer a lot of benefits like pension ,cinema passes gyms ,childcare vouchers etc etc .how much do you reckon I would need to cut of my wage to be better of ( avoid a less tax bracket ) should I buy everything they offer or just some ?or just work less to earn less commission

suso

evoscott wrote: »

I reckon I earn 45 k plus a year depending on commission so this should put me 50 percent tax . my company ofer a lot of benefits like pension ,cinema passes gyms ,childcare vouchers etc etc .how much do you reckon I would need to cut of my wage to be better of ( avoid a less tax bracket ) should I buy everything they offer or just some ?or just work less to earn less commission

your a long way off 50% tax

In the current year you do not pay higher rate tax until your earnings are above 43875 if you have a standard tax code of 647 L

and then you only pay tax at 40% on earnings above the amount mentioned above

If your code is different to the above then multipy the number of the code by 10, this will give you your personal allowance and add it to
37400 as this is the basic rate band for 2010/11

eg if your tax code is 118L - multiply 118 by ten which equals 1180 add it to 37400 which equals 38580, so you will start paying higher rate tax on any earnings above 38580 per annum

1180 would be tax free
37400 taxed @ 20%
anything above taxed @ 40%

if your commission is really high then once you hit 150000 per annum you then start to pay tax @ 50%

jennifernil

And even if you are in higher tax bands, it is only the income that takes you into that band that is taxed at 40% or 50%.

40% or 50% of something is still better than nothing.

chrismac1

Ton answer the question, the "normal" way of getting under the 40% area is topping up your pension with AVCs or a personal pension like a SIPP.

Whether this is the right move for you depends on lots of different things - your age, any debts you might have, whether you can find a decent pension charging 1% or less per year to name just 3 factors.

For most people in your income bracket paying 40% tax is voluntary, although they may not realise it. Most folk in your income bracket can spare £3k or so per year, which is all you need to stay in the 20% tax zone.

evoscott

chrismac1 wrote: »

Ton answer the question, the "normal" way of getting under the 40% area is topping up your pension with AVCs or a personal pension like a SIPP.

Whether this is the right move for you depends on lots of different things - your age, any debts you might have, whether you can find a decent pension charging 1% or less per year to name just 3 factors.

For most people in your income bracket paying 40% tax is voluntary, although they may not realise it. Most folk in your income bracket can spare £3k or so per year, which is all you need to stay in the 20% tax zone.

They offer a pension of whatever I put in they will contribute the same . Not in any debt in my early 30s the only problem I see with my pension is cause the line os work I'm in I find I change jibs every couple of years So don't know what would happen to the money I put in as I have never really looked into them before . What do you mean the tax is volotarny at 40% I'm in

jem16

evoscott wrote: »

They offer a pension of whatever I put in they will contribute the same .

You're throwing away free money by not being in this pension scheme.

the only problem I see with my pension is cause the line os work I'm in I find I change jibs every couple of years So don't know what would happen to the money I put in as I have never really looked into them before .

The money will still be there and will continue to make or lose money depending on how it is invested. You could also transfer it to your new pension scheme if that was better.

What do you mean the tax is volotarny at 40% I'm in

He means by paying the amount you are into the higher rate tax bracket by into a pension ( in your case approx £3k ) you can avoid paying 40% tax completely as you get 40% tax relief on the contributions.

chrismac1

I am not an IFA and never will be. But on the face of it a low-cost SIPP could be one potential answer for you. It is independent of an employer - you'll probably find you have lots of "paid-up" pensions. Some of these will be increasing in line with RPI - the better ones. Some will just be ripping you off at the expense of people either still in employment or drawing pensions from the scheme. it all depends on how the trustees vote - the trustees are normally pensioners and existing employees with perhaps one token "paid-up" pensioner, so votes for increasing paid-up pensions can be hard to come by in many of these schemes.

opinions4u

They offer a pension of whatever I put in they will contribute the same . Not in any debt in my early 30s the only problem I see with my pension is cause the line os work I'm in I find I change jibs every couple of years So don't know what would happen to the money I put in as I have never really looked into them before

This is the key to everything. Find out. Free money that you can get 40% tax relief on. Why wouldn't you?

Money won't vanish if you change jobs.

jem16

chrismac1 wrote: »

Some of these will be increasing in line with RPI - the better ones. Some will just be ripping you off at the expense of people either still in employment or drawing pensions from the scheme. it all depends on how the trustees vote - the trustees are normally pensioners and existing employees with perhaps one token "paid-up" pensioner, so votes for increasing paid-up pensions can be hard to come by in many of these schemes.

Both of these schemes that you describe sound like final salary pensions which are almost always best left where they are - they would certainly require an IFA to sign off any such transfer to a SIPP. These pensions would be called deferred pensions.

However as there are very few final salary pensions still available, especially in the private sector, the OP is more likely to be contributing to a money purchase scheme as he has already mentioned by saying "They offer a pension of whatever I put in they will contribute the same ."

These can be transferred easily but whether or not it is beneficial depends on the charges and funds offered in each scheme. A SIPP is one option but can often be the dearest option if just using funds. If you want the full features of a SIPP which allows investment into areas that a PP doesn't offer then yes use a SIPP.

chrismac1

In 1990 I worked for a company who put in 5% if I put in 5%. It was with Scottish Widows. I asked if there were other options because I thought it was pants, they said no. I thought "Well I am doubling my money here so I can't lose" I was there 12 months in which time 2,000 went in. The fund statements have shown 1,900 valuation back in 2008. I decided to move out of this rubbish scheme into my SIPP, knowing full well that my own investments over the past 20 years have beaten the market 9 years out of 10, never mind lose money overall like Widows.

Now here comes the crunch - the Market Value Adjustment. £385 is the value if I transfer out of it. So essentially they are saying "We know we are pants and lots of folk will want to move out of us but we're going to trap you with our rubbish schemes."

Anyone reading this who does not think it is worth looking closely at every single pension plan they are in must be nuts.

evoscott

chrismac1 wrote: »

In 1990 I worked for a company who put in 5% if I put in 5%. It was with Scottish Widows. I asked if there were other options because I thought it was pants, they said no. I thought "Well I am doubling my money here so I can't lose" I was there 12 months in which time 2,000 went in. The fund statements have shown 1,900 valuation back in 2008. I decided to move out of this rubbish scheme into my SIPP, knowing full well that my own investments over the past 20 years have beaten the market 9 years out of 10, never mind lose money overall like Widows.

Now here comes the crunch - the Market Value Adjustment. £385 is the value if I transfer out of it. So essentially they are saying "We know we are pants and lots of folk will want to move out of us but we're going to trap you with our rubbish schemes."

Anyone reading this who does not think it is worth looking closely at every single pension plan they are in must be nuts.

This is good ifo for me to think about . Everyone keeps going on about a sipps is this the best kind and what does it stand for?
Also thanks everyone that has taken time to reply .