Salary Sacrifice And 40% Threshold

drlabman

My salary for 2011/12 will be £46K. My company offers the option to sacrifice salary in favour of pension contribution. Just wondering whether people think I should sacrifice salary to the point where I'm below the 40% threshold. The main goal would be to prevent having to pay 40% tax on my share of savings interest. My wife and I have lots of savings in joint accounts at the moment, but we are gradually moving them into her name only (she's a non-taxpayer). Maybe the goal should be to move all our savings to her name only instead (except ISAs of course). Thoughts?

jem16

Have you joined the pension scheme already? Does your employer contribute to the scheme?

Using the pension to negate 40% tax is good if you are likely to be a basic rate taxpayer in retirement.

Mikeyorks

drlabman wrote: »

Maybe the goal should be to move all our savings to her name only instead (except ISAs of course). Thoughts?

Everything we have in cash - is in my wife's name, for that reason.

Everything in investments is 50:50 in order to make best use of the dual CGT allowances.

drlabman

jem16 wrote: »

Have you joined the pension scheme already? Does your employer contribute to the scheme?

Not yet - new job. Yes.

drlabman

jem16 wrote: »

Using the pension to negate 40% tax is good if you are likely to be a basic rate taxpayer in retirement.

And, what if I'll be a higher rate taxpayer in retirement?

jem16

drlabman wrote: »

Not yet - new job. Yes.

Free money then - grab it.

drlabman wrote: »

And, what if I'll be a higher rate taxpayer in retirement?

It will be less of a benefit but you still at least have the 25% tax free lump sum.

gadgetmind

drlabman wrote: »

And, what if I'll be a higher rate taxpayer in retirement?

My projections show me being around there particularly if the 40% bracket drags its feet rather than tracking CPI.

Things you can do to avoid this -
Take out your full 25% PCLS and dribble it into ISAs ASAP.
Only put enough into your pension to avoid 40% tax and do a basic stakeholder for your wife.
Get all investments that attract tax into your wife's name but split everything else 50:50.

Oh, and you may well be surprised at how big a pot you need to hit 40% tax. Play with the Hargreaves Lansdown pension calculator for a while.

John_Pierpoint

Put capital into NSI products - Premium bonds etc.
See if you can find a split capital investment - not very popular these days - that allows you to hold something that has no income but gets all the capital gain and tehn make sure you make enough capital gain every year to mop up a chunk of the nil rate band for DGT.