100% Salary Sacrifice

billchecker1

jem16 wrote: »

What are you paying for your police pension contributions? In an earlier thread you said it was £433pm but about to go up. If you take £433pm that's £5196pa.

That will then reduce your £39k gross to £33804. If you add on the £5k from the other job that's £38,804 which means you are not a higher rate taxpayer so BR is correct.

When you phoned HMRC did you give them your gross salary or your taxable pay? As far as HMRC is concerned £33,804 is what you need to quote for income from the Police as that is what is on your P60.

I had quoted 39K. Actually I didnt realise that the theshoild was lower than I had anticipated.

Thanks for this. I do get a small shift allowance but with it being lower I can now happily work some overtime.

Many thanks

billchecker1

Actually looking at last months pensions, I have paid approx £780 alone into pensions, my wife has her own LGPS pension.

Perhaps overpensioned if there is such a thing! ?

jem16

billchecker1 wrote: »

Perhaps overpensioned if there is such a thing! ?

Personally I would put an amount equal to the 40% tax that you would pay and no more apart from what is necessary to gain employer's contributions.

You are already doing this much with your police contributions so perhaps only putting enough to gain the employer's contributions would have been enough rather than the whole lot. Depends if you want to use this pot to allow slightly early retiral from the police.

billchecker1

jem16 wrote: »

Personally I would put an amount equal to the 40% tax that you would pay and no more apart from what is necessary to gain employer's contributions.

You are already doing this much with your police contributions so perhaps only putting enough to gain the employer's contributions would have been enough rather than the whole lot. Depends if you want to use this pot to allow slightly early retiral from the police.

Yes this is my plan. I no longer have faith that they wont change the goal posts with the retirement age once I get to 60. Will be nice to have something to fall back on should this occur. I also have a stocks and shares ISA which has a small amount in.

I still cant believe the jump up from 20 to 40%, 42000 isnt actually that much money and to pay nearly half your pay as tax to me seems ridicuous. The next jump up is at 150000 and doesnt double either.

Ultimatley I dont need the money at the moment. If I had taken it as income then it would have gone into my stocks and shares ISA anyway, but with this I gain the 40% back and the 6% from the employer. I seems like a win win situation for me!

jem16

billchecker1 wrote: »

I still cant believe the jump up from 20 to 40%, 42000 isnt actually that much money and to pay nearly half your pay as tax to me seems ridicuous.

You do realise that doesn't happen don't you? You will only pay 40% tax on the bit above £42,385 not the whole lot.

If I had taken it as income then it would have gone into my stocks and shares ISA anyway, but with this I gain the 40% back and the 6% from the employer. I seems like a win win situation for me!

That's just my point. You are not getting 40% back on the 2nd pension as you're not due to pay any 40% tax by that point. Your 40% tax relief is more than covered by your police contributions - even that doesn't get full 40% tax relief as only around about £2k of your contributions is entitled to it.

billchecker1

jem16 wrote: »

You do realise that doesn't happen don't you? You will only pay 40% tax on the bit above £42,385 not the whole lot.



That's just my point. You are not getting 40% back on the 2nd pension as you're not due to pay any 40% tax by that point. Your 40% tax relief is more than covered by your police contributions - even that doesn't get full 40% tax relief as only around about £2k of your contributions is entitled to it.

Yes I realise this. My point being that once I get past this point, which I could easily acheive by working more hours, then my hourly rate past this point would be nearly cut in half. Doesnt seem right really.

Of course I am not near this point at the moment and probably being over cautious. I havr however learnt from this and will seek to increase my hours. Thanks

jamesd

It's perhaps not right but that's what having a "progressive" tax system means: higher tax rates for those earning more, however they earn it. No forgiveness if it's from working 100 hours at a low wage or 20 at a high wage, it's all the same for income tax.

Pensions are one way out because you'll probably just pay basic rat tax on the 75% in retirement and 25% comes out tax free.

billchecker1

jamesd I accept that. I know its all relative to lifestyle but 42000 doesn't seem that high really. Certainly not enough to say that anything above that should be taxed at close to 50%. You are hardly dripping in gold with this income.


It cuts down the hourly rate past this point down considerably and actually makes it not worthwhile to work it. Surely this cant be a good strategy?

billchecker1

Actually. Thinking about it. Many people would be happy to work for 50-60% of my hourly pay so apologise if that sounded a little arrogant.

jamesd

It's not arrogant, it's simply truth. the system is set up so that about half of the population at any one time are net recipients from tax revenues, while the other half are net payers. Just remember that when politicians talk about a more progressive tax system or targeting the well off to pay for more for the poor, it's you that they are talking about.

Don't forget VAT and duties on things you buy. At 40% your actual total tax and duty rate combined is likely to be over 60%.

the way you win in this competition is by investing or the future, against a time when your tax rate is lower, or using tax breaks like the one for VCT investing as well as ISAs and pensions. You're probably not a good candidate for VCT use yet, not enough income or assets from the appearance of things.