Salary sacrifice pension question

ChuckMountain

As Snakey states you need to watch out for bonuses.

If you decided that you are for example putting 15% of your salary into your pension to reduce it to below £100k then your tax code assuming nothing else would normally give the full personal allowance for the year.

If you say got a 20% bonus and its towards the end of the tax year you could be a in a position where PAYE applies only 40-45% of tax to the bonus and you are left in a position where you owe the tax man the difference. A few people on these threads have been caught out with a large tax bill it could be as much as 40% of your personal allowance (equating to the 60% notional tax) so depending on the size of bonus could be as much as an extra £4,600 in tax.

You also need to watch for any shares\dividends they offer as they might well count as income.

Is there a car as well as that will BIK.

If you are not already then you will probably end up doing self assessment if you earn over £100k.

burgerandbreadcrumbs

As the others have noted, it is a matter of looking at all your sources of income to determine whether your adjusted net income exceeds £100k. And benefits in kind, such as a company car, interest free company loans, health insurance will lower your personal allowance anyway. My expectation is that you will not have a full personal allowance.

A futher consideration is if your employer will pay into your pension as well. Given your salary, the maximum contribution that can be made into all of your pension schemes is £40,000 in this tax year (you may be able to carry forward unused amounts from your prior three tax years and so can put in more). Any excess will result in a 25% tax charge on that excess which will need to be reported by you in your self assessment return.

I suggest you engage a financial adviser/wealth planner.

Chippy99

Thanks again chaps. I think I will simply make sure my total income from all sources falls below £100k. For people fortunate enough to earn way more than £100k/y then perhaps the marginal 60% tax rate on the income band from £100k to circa £122k is not too upsetting. But for someone earning £116k, it's pretty galling to be paying 60%, when the Additional Higher Rate is "only" 45%!

So I will avoid it.

ChuckMountain

Yes it was introduced as a leaving present by the last Labour government

It's similar to the loss of Child Benefit and creates another 60% tax situation which is ridiculous.

Just watch the bonus situation as that can screw up your planning if you get one as they are usually variable. In some ways if you can't reduce the amount to below £100k its better to declare it via the tax code then when you do get bonus you have paid correct tax on it.

Also if you are allowed to buy holiday for example from your company that will reduce your income.