Higher rate tax - extra pension contributions?

CJR1

Hi
I wonder if you can help, it looks like this year my husband will fall into the 40% tax bracket.
His code at the moment is 1100L.

He will have earned by the 15th March his next payday, £45000.00 give or take a few pounds and has just been awarded a bonus of 3995.00 gross which will be paid on the 15th March, which is in addition to the above amount.

He is paying into a company pension 6% of his salary which his company also pay in 6%.
I understand a sensible way to bring his earnings down is to pay more in to his company pension scheme?

Is it too late now this year to do that in terms of reducing his tax liability?
Any advice would be appreciated.
Thanks

callipygian

Why do you want to bring his earnings down? The higher rate tax is only applicable on the salary that is over 43K, it's not applied to the whole salary.

In this particular case though his salary sacrifice pension is £2700 meaning his taxable income is below the high rate tax limit? 45000-2700=£42,300

By all means you could add a single contribution to his pension if that's what you want to do. It's not too late, as long as its done this month it should be fine, but I'm not sure why you want to.

His tax code wont change unless he is earning over 100K or you have other deductions like underpaid tax from the previous year.


EDIT: Just saw that the bonus is on top - same advice though, i wouldn't worry too much about it but if you want to save more then by all means do. For people who are earning just over 100K it is worthwhile cramming extra into a pension because you are effectively paying a 60% tax because of the clawback of the tax free allowance. If you want to save more its not too late.

CJR1

callipygian wrote: »

Why do you want to bring his earnings down? The higher rate tax is only applicable on the salary that is over 43K, it's not applied to the whole salary.

In this particular case though his salary sacrifice pension is £2700 meaning his taxable income is below the high rate tax limit? 45000-2700=£42,300

By all means you could add a single contribution to his pension if that's what you want to do. It's not too late, as long as its done this month it should be fine, but I'm not sure why you want to.

His tax code wont change unless he is earning over 100K or you have other deductions like underpaid tax from the previous year.


EDIT: Just saw that the bonus is on top - same advice though, i wouldn't worry too much about it but if you want to save more then by all means do. For people who are earning just over 100K it is worthwhile cramming extra into a pension because you are effectively paying a 60% tax because of the clawback of the tax free allowance. If you want to save more its not too late.

Thanks for the reply, sorry I don't think I worded it correctly,
We are looking not so much to reduce his salary as reduce the probability of falling into the higher rate tax band.
if I'm correct in thinking his bonus will now be taxed at 40%?? To avoid this or at least lessen it should he put more into his pension and at this late point of the tax year would it count.
This scenario hasn't arisen before and is likely to happen again next year as he has had a small payrise so just thinking overall really.
thank you

callipygian

It kind of depends, do you have anything else that comes out of his salary tax free, childcare vouchers?

If theres nothing then yes, most, but not all of his bonus will be taxed at 40%

It will count for this tax year as long as it happens this tax year.

CJR1

callipygian wrote: »

It kind of depends, do you have anything else that comes out of his salary tax free, childcare vouchers?

If theres nothing then yes, most, but not all of his bonus will be taxed at 40%

It will count for this tax year as long as it happens this tax year.

Thanks again, no nothing else deducted from his salary only his pension.
Sorry for all the questions but if I'm understanding it correctly if he pays extra into his pension he would in essence get extra contributions in lieu of giving it to the taxman.
thank you

callipygian

Yes that is correct