Avoiding 40% tax

le_loup

No attack, it's a discussion.

HappyMJ

Everyone seems to be forgetting the National Insurance contributions which make the effective tax rate 20%+12%(32%) or 40%+2%(42%). On £5,000 of income over the threshold that would mean an extra £500 in taxes. Make sure any scheme you join is worth it. If it's a pension then you'll be losing access to £5,000 until your retirement all for £500.

we44

May I add a side question to this debate please relating to the AVC side of things?
I'm in a situation (and have been for 4 years) where I earn more than £42,475 so am in the higher tax bracket on the excess. I currently pay into a works pension and also pay approx £150/month into AVCs. If I want to get down to the 20% tax bracket, how do I calculate how much I need to increase my AVCs by to achieve this? For arguements sake say I earn £47K.
Is the calculation simply:

Higher tax earnings per year = £47,000 - £42,475 = £4,525
Higher tax earnings per month = £4,525 / 12 = £377
Current AVCs per month = £150
Extra AVC contributions to bring to 20% = £377 - £150 = £227

and presumably the tax I pay at 40% on the £4,525 would therefore not exist as I would effectively be only paying 20% throughout ?

ceeforcat

When you say that you earn £47000, is this before or after works pension contributions? A breakdown of a monthly payslip would be helpful.

we44

£47K is gross before any deductions. I pay about £200/month into my pension on top of the AVC's.

CLAPTON

it goes like this

gross pay =47,000

taxable = gross pay less pension payments
so taxable pay is 47,000 - 2,400 (main pension) - 1800 (AVCs) = 42,800
so to avoid 40% tax you need to pay 42,800 - 42475 = 325 pa extra out of gross earning

zygurat789

Not that long ago you could elect the split of the rent of a jointly owned proprty, 100%/0% if you wished. No need to transfer or sell.
Is this not still current?

ceeforcat

Yes zygurat - form 17 applies. Howver you cannot have a different interest in the income of an asset from your interest in the asset. My advice - do not even go there!

http://www.hmrc.gov.uk/forms/form17.pdf

zygurat789

ceeforcat wrote: »

Yes zygurat - form 17 applies. Howver you cannot have a different interest in the income of an asset from your interest in the asset. My advice - do not even go there!

http://www.hmrc.gov.uk/forms/form17.pdf

Presumeably for CGT reasons?
Couldn't you later elect for a 50/50 basis?