tax after a large bonus

spiritless

It must be bonus season, I've seen a few queries similar to mine but not quite the same, I hope someone can reassure me?

Husband is a higher rate tax payer, basic salary is 74k. He received a large bonus last week, equIvalent to just over 6 months salary. I don't know what the gross amount was but 23k hit our account...though husband said he paid more tax on it than I earn in a year :rotfl:

He's been paid his normal wage today and his take home pay is around 2k less than normal. No great shakes this month as I hadn't spent all of the bonus yet and I'm sure it will all even out a bit over the coming months but will he continue to bring home less than before hi bonus due to earning more this tax year (has the bonus put him up to the highest tax bracket?) or can we expect to see a more normal net wage next month onwards?

I'd planned to pay a nice lump off the mortgage but now I'm reluctant in case I get it wrong!

agrinnall

We need real figures to give you proper answers, so if you don't know how much the gross bonus was we can't be a lot of help. If you do manage to find that out there will be other details needed to give any sort of accurate response.

spiritless

He's out celebrating today but I'll find out from him and get back, thank you.

badmemory

In the long term it should work out that he has paid 40% tax on all the extra. So for example if the bonus was £40k then by the end of the year he will have paid £16k more tax than he would have paid just on basic. But it will take some months to get back to that as tax works on the idea that if you get an amount in one month then the future will continue like that. Meaning that each month going forward some of the tax will have already been paid.

[Deleted User]

badmemory wrote: »

In the long term it should work out that he has paid 40% tax on all the extra. So for example if the bonus was £40k then by the end of the year he will have paid £16k more tax than he would have paid just on basic. But it will take some months to get back to that as tax works on the idea that if you get an amount in one month then the future will continue like that. Meaning that each month going forward some of the tax will have already been paid.

Not quite. A bonus of £40000 takes the annual income to £114000. The tax on the bonus will be £26000 at 40% and 14000 at 60% - £18800 in total. It could be less - we need to know how the op's husband funds his pension.

spiritless

Ok, I have some facts.

74k basic
38k bonus
Tax code amended in his salary today to 1050l M1

Today's salary is short (2500 instead of 4198)

No pension. Only benefit is healthcare provided by company of around £400 a year. Pension is on the to do list now our crippling debt is cleared .

[Deleted User]

spiritless wrote: »

Ok, I have some facts.

74k basic
38k bonus
Tax code amended in his salary today to 1050l M1

Today's salary is short (2500 instead of 4198)

No pension. Only benefit is healthcare provided by company of around £400 a year. Pension is on the to do list now our crippling debt is cleared .

So the tax which will ultimately become due on the bonus will be £17600. This is £26000 at 40% plus £12000 at 60% (the effective marginal rate between £100000 and £123000. However, with the code change AND the fact that it is on a month 1 basis may mean that a year end review will ultimately sort matters out.

I should say that there is a big opportunity to maximise tax relief on a pension here. A contribution of £9600 will be increased to £12000 by HMRC with further tax saving of £4800. (60%- 20%) x £12000.

£12000 into a pension for a net cost of £4800!!!

Dazed_and_confused

Unless he asks for his tax code to be changed now to reduce his personal allowance (due to income going over £100k) he's going to have a largish tax bill to pay in January 2019 when he completes his Self Assessment return.

As purdyoaten2 says though pension contribution could mitigate this to some degree, particularly were it to bring his adjusted net income (check it on gov.uk) to below £100,000.