Avoiding 40% tax

Any

But they don't want to earn less... they just want to make sure the earnings are processed the most tax efficient way...

le_loup

Agreed but the point is how truly fearful people are about going into a higher band. Some think they are going to have to pay the higher rate on the whole income which, when you think about it, is truly bizarre! If people are earning around £45K you'd expect them to be a bit brighter than your average minimum wage earner!
Look at the convolutions the OP is thinking of doing to attempt to save a bit of tax, when others would love to be in a position tp pay 40% on the top slice. Now, I agree that if you can legitimately reduce your tax, it is your duty to do so, but as in all things, don't let the tax tail wag the dog.

heretolearn_2

Yes, I wonder if the OP thought that 40% was going to be charged on the whole lot - it's a common misconception and someone was getting into a panic over this on here only last month.

Generally speaking if you are only just in the higher tax bracket it's not worth messing about with trying little schemes to reduce the tax. The costs and aggro usually outweigh the benefits. Put it this way, it's still an extra £3k a year in your pockets if it's an extra £5k gross! But people find that a bad thing....

We don't start tax planning until people are earning nearly £100k, at that level it becomes worthwhile for them.

Any

Sorry, but if OP's OH is going to reach 40% tax bracket this year, he will be hitting it probably every year from now on so why not get it sorted now? Savings of 20 yrs x £500 (just plugged some numbers out of thin air) is £10k... The earlier you do it the better!

If spouse has personal allowance and is not using it and the other person is in 40% bracket you would have to be stupid not to use it up if you can.

Actually now thinking about it, if OP has no income in UK and has tax allowance and OH is in 40% then the saving is £1k in tax per year..

£2500 x 40% & £2500 x 0 (PA) as opposed to £5000 x 0 (PA)

Surely that is saving worth having?

zagfles

le_loup wrote: »

Agreed but the point is how truly fearful people are about going into a higher band. Some think they are going to have to pay the higher rate on the whole income which, when you think about it, is truly bizarre!

It's not really that bizarre, it's exactly how stamp duty works!

Buy a house for £249,999 and you'll pay 1% ie £2,499.99, buy a house for £250,001 and you'll pay 3% on the whole lot, ie £7,500.01

le_loup

Any wrote: »

Surely that is saving worth having?

Did you miss my bit that said:
"Now, I agree that if you can legitimately reduce your tax, it is your duty to do so, but as in all things, don't let the tax tail wag the dog."

zagfles

heretolearn wrote: »

Yes, I wonder if the OP thought that 40% was going to be charged on the whole lot - it's a common misconception and someone was getting into a panic over this on here only last month.

Generally speaking if you are only just in the higher tax bracket it's not worth messing about with trying little schemes to reduce the tax. The costs and aggro usually outweigh the benefits. Put it this way, it's still an extra £3k a year in your pockets if it's an extra £5k gross! But people find that a bad thing....

It might be worth it if they get child benefit - with the changes upcoming in 2013, depending how they do it (eg if there'll be a taper, will there be any deprivation rules...).

geordieabroad

Many thanks for all the comments.

I may be not very knowledgeable about UK tax, but I do understand the 40% is only payable on income over £42,475 this financial year. It's because I will have an income of only around £2,500 (my 50% of rental income on our house) this year and therefore will be almost £5000 below my personal tax limit that we were considering making me the sole owner of the house, all rental income would then be in my name and I'd still be within my personal tax limit and pay no tax.

My husband, along with many colleagues, has agreed under duress to sign a new contract with a slightly higher salary in exchange for even worse working conditions. He and many colleagues feel they had no choice to try and increase their chances of avoiding civil service redundancies - his department was already understaffed and yet Cameron had set the target to lose a further 25% staff. They are front line law enforcement. So the result is £5,000 more salary. When you add on his income from the house, he will now be £5,000 into the 40% bracket, but paying 40% means a net sum of £3,000.

The idea was to put £2,500 into a pension, plus to transfer the property to my name and transfer the £2,500 income into my name, bringing him back into 20% tax bracket..... the result would be a pension investment of £2,500 instead of £1,500 in hubby's pocket (40% tax on top £2,500 of salary) and a full £5,000 income from our rented house, instead of £4,000 income (40% tax on hubby's half in £1,000).

leave alone
1,500 hubby salary + 4,000 rent = £5,500 in pocket, pay £2,000 tax

pension+house change
£2,500 to pension, 2,500 + 2,500 rent= £5,000 in pocket, pay no tax

Over one year, this might not seem such a good idea, but over several years perhaps?

geordieabroad

We don't get any UK child benefit .... we get it from the other EU country, the UK child benefit system seems very against large families, whereas thankfully where we live, you get more for the third child. It's precisely the reason I work here and no longer as a UK civil servant.

Any

le_loup wrote: »

Did you miss my bit that said:
"Now, I agree that if you can legitimately reduce your tax, it is your duty to do so, but as in all things, don't let the tax tail wag the dog."

I actually wasn't commenting on your comment...
More on Heretolearn's "If you are just in higher tax bracket it is generally not worth messing about" ... And in general.

No idea what made you think I went straight for attact of your post??!! I didn't quote you?