Over taxed?

jem16

notanewuser wrote: »

With an income of £72k and talk of house deposits for children, I'm guessing there are savings accounts which won't be taxed at the right level.

Might be better to be handled by a phone call to HMRC and then a simple tax code adjustment.

jamesd

vc10101 wrote: »

I have a RAF pension of 12k per year. I also earn 60k per year in my new job. ... The Tax Man takes 40% tax from my pension and 40% tax on my salary. ... Is ther any way to reduce it?

Yes, a few:

1. Pension contributions. With your income so high you'll get 40% tax relief on about £30k of pension contributions and can make or have made in your name by an employer £50,000 of gross pension contributions this year, dropping next year. How you get the tax relief depends on how you pay, a work salary sacrifice scheme is best. If you instead pay into a personal pension directly you'll pay in say £8k, the pension company will add £2k to give you basic rate tax relief and you tell HMRC who will increase your basic rate tax band by the 10k "basic rate gross" amount so you pay less tax. If you told them after you did it they will either send you a refund or adjust your tax rate to pay the overpaid tax back in PAYE.

If you are 55 or older you can even take 25% of the money out of the pension as a tax free lump sum and effectively get some extra relief that way. With the remaining 75% you can use income drawdown to stay invested and either take an income (which you could recycle into more pension contributions) or just leave it to grow. This works out really well:

Pay in 8k, get it topped up to 10k, get 2k back from HMRC, take 2.5k in lump sum leaving 7.5k in the pension pot for a net cost to you of just 8k - 2k - 2.5k = 3.5k. Not quite instant but completely safe and legal more than doubling of your money! And you can, if you like, take out about £375 a year of income from the 7.5k left in the pot.

2. Venture Capital Trusts pay tax relief of 30%, capped on the total amount of income tax paid during the year, after allowing for pension relief. VCTs are a fairly high risk investment so not for more than a fairly small proportion of your income.

It's true that it is quite hard to save for a deposit these days but you also have to make sure that you're putting enough money away for your own retirement and not spending too much on the children and compromising your own life.

Do be sure that you tell HMRC about all of the interest you get in savings accounts so they can deduct the additional 20% of income tax that you owe. They will normally do this by adjusting your personal allowance and PAYE notice of coding. What they will want to know is the gross interest and the tax deducted and all places with savings accounts tell you this information, often also in an annual statement. It's not a big deal for modest amounts of money to realise you didn't do this when you should and tell HMRC about several years worth at once, there won't be drama.

Because of the huge benefit of making pension contributions, if you want to help children with property deposits it'll probably be best for you to do it by increasing your own mortgage while making high pension contributions to get the tax relief. Then you can use the pension income to cover part of the increased mortgage payments - it should cover the interest and more.

atush

Well, it took til post 13 from someone to mention the obvious ways for this 'little guy' to reduce his tax bill.

Pensions, and VCTs.

jamesd

I don't think that my last post really answered the intended question. I think that what was really being sought is a way to pay less tax to increase income now, not pay less tax and also reduce income now to boost income later. The first reply answered that apparently intended question.

kidmugsy

FatherAbraham wrote: »

£72,000 pa is hardly "the little guy".

£72k p.a. presumably puts one in the richest 0.1% of the human race in history. Thereabouts, anyway.

whitesatin

FatherAbraham wrote: »

£72,000 pa is hardly "the little guy". You are richer than the vast majority of the UK population. See http://www.guardian.co.uk/society/datablog/interactive/2012/jun/22/how-wealthy-you-compared

Paying an accountant to advise on techniques to reduce your tax liability is a purely financial transaction -- you do it if the net result is likely to be positive. Why on Earth should you get personalized financial advice, which might enrich you, free?

Warmest regards,
FA

I tried that link and it tells me I am the squeezed middle and that 61% have less income than me (us). I would be interested to see a similar link taking into account outgoings, e.g.mortgage payments etc. I reckon wealth is relative to outgoings as well as income.

Sorry, OP, I know this is hijacking the thread a bit.

zygurat789

whitesatin wrote: »

I tried that link and it tells me I am the squeezed middle and that 61% have less income than me (us). I would be interested to see a similar link taking into account outgoings, e.g.mortgage payments etc. I reckon wealth is relative to outgoings as well as income.

Sorry, OP, I know this is hijacking the thread a bit.

Absolutely NOT. What you do with your money is your affair and has no relevance at all to this

jamesd

It's hijacking but vc10101 really has the answers needed already unless there are followup questions.

The feeling of wealth does depend on context. That's why you have books like The Millionaire Next Door observing that asset poor and high spending individuals tend to live in high cost areas, compared to their incomes, while the wealth in assets ones tend not to have such a high spending lifestyle. The ones who accumulated the assets weren't spending so much of their money, so were able to accumulate more of it on the same income level, increasing their future, or current, income potential from those accumulated assets.

That's not really the context you were writing about and yours also matters, but it's a matter of choice: you do generally have the freedom to reduce outgoings by renting or living in less expensive places to increase your disposable income.

Now actually I don't think that this is off topic. Vc10101 might usefully read The Millionaire Next Door, noting the "economic outpatient care" pieces. Maybe you and others also, it's a useful read.

whitesatin

zygurat789 wrote: »

Absolutely NOT. What you do with your money is your affair and has no relevance at all to this

I am not suggesting that you make your personal finances public, of course. It would just be interesting (to me anyway) to see where I am perceived to stand.