40% Tax Liability

ChopperST

TH1878 wrote: »

Chopper, if you pay into a personal pension, it has nothing to do with your NHS pension. You can start drawing it from age 55.

Are you fixed into a deal on your mortgage? If you're not, flip it to an offset mortgage and pay any excesses into there.

If you are, pay into a private pension (making sure you reclaim tax relief through self assessment!) until you can change your mortgage.

Failing that, grit your teeth and bend over.

Yes we are currently on a fixed deal but it allows 10% overpayments of the original balance per year of the fix so thats fine for my needs at present.

Will look into opening a private pension over the weekend.

IronWolf

gadgetmind wrote: »

That's always been my view, but some just do a quick before and after calculation regards their pay slip and say "naaa".

Seriously, we have *huge* issues getting people to take on management responsibility and other employers that I speak to have the same issue. If you keep squeezing the middle, then no-one will want to move there.

That's exactly how I feel. I currently do additional self employed work, but when I move into HR tax with my full time job I'm just going to stop doing it. It isn't worth the additional effort, I would rather spend my time enjoying my life!

opinions4u

ChopperST wrote: »

Yes we are currently on a fixed deal but it allows 10% overpayments of the original balance per year of the fix so thats fine for my needs at present.

Will look into opening a private pension over the weekend.

Does your employer have any AVC options that can be deducted from salary at source and provide any sort of matching funds?

Nick_C

CLAPTON wrote: »

the marginal rate of tax on at standard rate is 20+12 = 32 %
the marginal rate on higher band is 40+2 = 42%

significantly more of course but I personally wouldn't call it mind boggling sums

Unfortunately, that's not necessarily true.

I moved to a cheap property and invested my spare capital in shares to boost my income. My total capital is quite modest, but I am getting approximately £5K pa investment income.

I am currently looking around for jobs, and am desperate to stay out of the sickening 40% tax bracket.

As long as I remain a BR tax-payer, by investment income is taxable at 10%. If I move into HRT, my investment income becomes taxable at 32.5% - I would suddenly have to pay an additional £1125 pa tax on my dividends. So for example if I take a job that takes me above the HRT threshold by £2K, I will have to pay additional tax of £1965 - 98.25% marginal tax rate.

If I got a job that took me above the HRT threshold by £1900 or less, my marginal tax rate would be more than 100%

lisyloo

Thanks for raising the discussion. I'm going to look at increasing my own pension contributions from 15% - 20% when my DH gets a job.
Have been asking my (US) company to do salary sacrifice for a year !!

ChopperST

opinions4u wrote: »

Does your employer have any AVC options that can be deducted from salary at source and provide any sort of matching funds?

Yes the NHS pension scheme allows me to make AVC's to schemes with standard life or prudential. However the draw down date cannot be earlier then that of my main NHS pension.

bigadaj

Nick_C wrote: »

Unfortunately, that's not necessarily true.

I moved to a cheap property and invested my spare capital in shares to boost my income. My total capital is quite modest, but I am getting approximately £5K pa investment income.

I am currently looking around for jobs, and am desperate to stay out of the sickening 40% tax bracket.

As long as I remain a BR tax-payer, by investment income is taxable at 10%. If I move into HRT, my investment income becomes taxable at 32.5% - I would suddenly have to pay an additional £1125 pa tax on my dividends. So for example if I take a job that takes me above the HRT threshold by £2K, I will have to pay additional tax of £1965 - 98.25% marginal tax rate.

If I got a job that took me above the HRT threshold by £1900 or less, my marginal tax rate would be more than 100%

But that was your choice and you obviously knew the consequences. Diversification in investment terms isa good thing but you've lost out potentially in the overly favourable tax treatment of owned property in the uk. Significant sums can be sheltered by placing into pensions and isas, and the pension could obviously be utilised if you went into higher tax rate area with 42% effective government contribution.

Or simply stay in a job which pays no more than the high thirty thousands, again your choice.

Nick_C

bigadaj wrote: »

Or simply stay in a job which pays no more than the high thirty thousands, again your choice.

I fully intend to take low paid work to stay out of the 40% tax bracket, or make ridiculously high pension contributions. The point I was making however is that marginal tax isn't always as simple as 42%, and the marginal rate can be punitive.

gadgetmind

Nick_C wrote: »

or make ridiculously high pension contributions

I'm at 65% this year and am also doing fancy tricks (that perplex accountants, IFAs, and pension company drudges) with Pension Input Periods to ride the wave of carry forwards.

racing_blue

1. Maximise ISA allowance each year. Any resulting income compounds year on year tax free. Delayed gratification... I think of it as effectively buying a lower rate of income tax in 5 or 10 years time.

2. Incur the right sort of expenses

3. Additional pension contributions, if liifetime allowance unlikely to be a limiter