Question about personal allowance over £100K

marcusjames

I understand the theory but have a question about the specifics.


For example, if I lose my personal allowance through a benefit e.g. company car, will exceeding £100K have no impact? Rationally I think the answer is no but wanted to check.


Previously I've added benefits to income and used a full allowance. However, HMRC will reduce personal allowance.


Do those ramblings make sense?


Thanks

Pennywise

Benefits are added to wages, so if total over £100k, will reduce personal allowance

macgyver

How would having a company car remove your personal allowance? As far as I know, it shouldn't. For company car you might have to pay benefit in kind.

Dazed_and_confused

Personal allowance is based on something called adjusted net income (Google is your friend) so if your adjusted net income, which would include any car benefit, exceeds £100k you start to lose some of your personal allowance.

marcusjames

Thanks all.


That makes sense. HMRC will drop personal allowance in the revised tax codes so I wondered if this would be impacted. It made no sense, as it would favour those employees with big BIK.

EdSwippet

marcusjames wrote: »

That makes sense. HMRC will drop personal allowance in the revised tax codes ...

And just in case this has somehow passed you by... once you hit the effective 60% tax band from £100k to £123 it is usually a good idea to make enough pension contributions to bring your income back down to under £100k and so get back your annual tax-free allowance.

martinsurrey

EdSwippet wrote: »

And just in case this has somehow passed you by... once you hit the effective 60% tax band from £100k to £123 it is usually a good idea to make enough pension contributions to bring your income back down to under £100k and so get back your annual tax-free allowance.

Which is exactly why its a silly system, most people in this situation I know do exactly that, its amazing how many people earn £99k, so a measure to raise additional tax, actually reduces it, but it cant be easily changed to a rational system as it'll be seen as "a tax break for the rich!"

bonbon5

marcusjames wrote: »

I understand the theory but have a question about the specifics.

Hi,

I have a similar question on this topic.

I have just discovered that for higher earners, for every £2 they earn over £100,000 they lose £1 of tax allowance. That means that if someone earns over £123,000 they lose all of their £11,000 tax allowance and in effect have no tax allowance.
If that person pays the excess that they earn over £100,000 into their employer's pension fund, will they regain their tax allowance or is that based on figures before pension contributions?
A nice quandary to have I know but if anyone can answer the question it would be very much appreciated.

Many thanks.

EdSwippet

bonbon5 wrote: »

If that person pays the excess that they earn over £100,000 into their employer's pension fund, will they regain their tax allowance ...?

Yes. This paper from Royal London shows how it works.

It doesn't have to be an employer's pension fund either, by the way. Any pension will do -- SIPP, personal pension, and so on -- and here you would claim back the tax relief in excess of 20% through 'self assessment'. If your employer offers 'salary sacrifice' for pensions, using that would generally net you even more than 60% in effective tax+NI relief.

When making more pension contributions, though, you want to be wary of the pension annual allowance and also perhaps the pension lifetime allowance.

bonbon5 wrote: »

... or is that based on figures before pension contributions?

The annual tax free allowance phase-out takes effect after pension contributions.

Perhaps you were thinking here of the pension annual allowance taper? That does use income numbers that include pension contributions in order to control the tapered reduction.

Bonkers, isn't it?