Pros and cons of being a higher-rate tax payer

CKhalvashi

sunshinetours wrote: »

£50k for either of you is the magic number not £60k. Gradual withdrawal of child benefit if either of you over £50k creates the large marginal rates I mentioned and highlights the inequalities now in the system for "middle" earners

Thank you for correcting. It doesn't affect us, so I'm not 100% clued up.

CK

dzug1

onlyroz wrote: »

The money is "our" money, obtained through a remortgage of our jointly owned property, but currently sits in a savings account in my name. I don't see the difference between that and it sitting in a savings account in his name.

There isn't really any difference

Unless at some time in the future you fall out with each other. It would be a brave person who says that will never happen. Remember 'in his name' means 'his'.

onlyroz

Well we currently use the child benefit to pay the childminder who collects our son from school. If I was earning over £50k then my husband could go part-time and so we wouldn't need to employ the childminder.

In any case I'm not quite there yet...

thenudeone

There is no real benefit as far as pension contributions goes to being a HR taxpayer, if you start from the point of view of gross income.

If you earn £1000 gross and want to put it in a pension, you pay no tax on it, and £1000 ends up in your pension. The mechanics are a bit more complicated for a HR taxpayer but the end result is the same.

The important point is you don't get any more in your pension if you are a HR taxpayer than a basic rate taxpayer. To put £1000 in your pension you have to earn £1000; and that £1000 isn't taxed.

The apparent benefit arises a HR taxpayer has to forgo £600 of take-home pay to put £1000 in a pension, but a BR taxpayer has to forgo £800 to do the same.

zygurat789

thenudeone wrote: »

The apparent benefit arises a HR taxpayer has to forgo £600 of take-home pay to put £1000 in a pension, but a BR taxpayer has to forgo £800 to do the same.

£200 Looks like a very real benefit

CKhalvashi

zygurat789 wrote: »

£200 Looks like a very real benefit

It is a very real benefit.

CK

sunshinetours

zygurat789 wrote: »

£200 Looks like a very real benefit

LOL indeed!

The mechanics are different in that both will pay an amount into a pension net of basic rate and this gets topped up by the tax amount in your actual pension fund.
If you are a higher rate payer you then claim higher rate relief either when you do your self assessment or via your tax coding.

Either way a very real benefit in cash terms!

onlyroz

thenudeone wrote: »

The apparent benefit arises a HR taxpayer has to forgo £600 of take-home pay to put £1000 in a pension, but a BR taxpayer has to forgo £800 to do the same.

Some more info on this apparent benefit would be appreciated. Let's say that each month I put £200 into a pension. How is my take-home pay affected if I am (a) just below the 40% tax threshold or (b) just above it? In words of one syllable please

Edit - bear in mind that I have a company pension which comes out of my salary directly via "pension salary sacrifice" (and so I don't have to pay NI on my pension contributions).

vacheron

onlyroz wrote: »

The money is "our" money, obtained through a remortgage of our jointly owned property, but currently sits in a savings account in my name. I don't see the difference between that and it sitting in a savings account in his name.

If you have a mortgage why not look at an offset mortgage, that way the savings can remain in your name for when you need them, but as you save mortgage interest rather than earning income you don't pay any tax on them.

If you ever head towards the 50K child allowance figure, just pay the difference into your pension.

onlyroz wrote: »

Some more info on this apparent benefit would be appreciated. Let's say that each month I put £200 into a pension. How is my take-home pay affected if I am (a) just below the 40% tax threshold or (b) just above it? In words of one syllable please

Edit - bear in mind that I have a company pension which comes out of my salary directly via "pension salary sacrifice" (and so I don't have to pay NI on my pension contributions).

What people are saying is that if you put £100 PM into your pension and pay basic rate tax you would only be able to take home £80.00 after tax if you chose not to pay this into your pension. Once you have crossed the higher tax threshold you would only be able to take home £60.00.

With salary sacrifice as a high rate tax payer, you do not need to worry about recovering your pension tax relief from the tax man as others would have to because salary sacrifice is effectively a before tax deduction. So at least that makes things easier!

onlyroz

vacheron wrote: »

If you have a mortgage why not look at an offset mortgage, that way the savings can remain in your name for when you need them, but as you save interest rather than earning income you don't pay any tax on them.

If you ever head towards the 50K child allowance figure, just pay the difference into your pension.

I have got an offset mortgage but the interest rate is only 0.99% at the moment. If and when the interest rates rise, I'll then start using it for the savings again.