Confused by tapered annual allowance

Mistermeaner

Sorry if this is a dumb question but I've read numerous site including .gov to try and understand but just can't get my head round how the tapered annual allowance works, difference between threshold and adjusted income etc

I'm paye and have a dc pension , no income from other sources

Contributions to dc are made via ss (straight from wages pre tax)

My basic income is 80k get annual bonuses of around 45k ... So total what I would call gross income pre ss and pre tax of 125k (HMRC seem to call this net income?)

My employer pays 11% into my dc pension

I have carry over allowance from previous years so am paying 50% of my basic into scheme this year , that means my total dc contribution will be 40k + 8k = 48k

My taxable earnings will be 40k + 45k = 85k

Could someone please tell me what my respective threshold income and adjusted income is ? I think I'm ok this year but adding taxable earnings to pension contributions gets me to 133k so getting dangerously close

2me question - what happens when one exceeds the annual allowance (assuming no carry forward)? If it's taxed at marginal rate then makes pension somewhat unattractive vs e.g. Lisa i think ... Or am I missing something (i don't expect the 25% lump sum to remain untouched in the 20 years i have to go)

3rd question : is the tapering of the personal allowance based solely on taxable income? In this case is it maybe best to take the hit on exceeding the tapered annual allowance in your pension than get the double whammy of high rate tax plus withdrawal of personal allowance resulting in a punitive rate of tax

Nice problem to have but earning 100k + does seem to result in some punitive and unnecessary complicated tax scenarios

And don't get me started on child benefit (I got 4 kids and the missus doesn't work)

kidmugsy

Piece of cake.
https://3652daysblog.wordpress.com/2018/03/05/pension-allowance-taper/

Dazed_and_confused

Personal Allowance is based on "adjusted net income".

Oddly this means you can be taxed on say £125,000 but still receive the full Personal Allowance.

https://www.gov.uk/guidance/adjusted-net-income

Salary sacrifice isnt really taken into account for adjusted net income purposes, you have agreed to give up some salary in return for your employer paying into a pension for you and it is that (lower) income which is relevant as far as the adjusted net income calculation is concerned.

Mistermeaner

kidmugsy wrote: »

Piece of cake.
https://3652daysblog.wordpress.com/2018/03/05/pension-allowance-taper/

So my threshold income is 125k (everything apart from company contribution)

My adjusted income is 133k (as above +8k my employer contributes)

So if I get a 17k payrise regardless what I do re ss etc i will hit the taper

kidmugsy

Mistermeaner wrote: »

I have carry over allowance from previous years so am paying 50% of my basic into scheme this year , that means my total dc contribution will be 40k + 8k = 48k

In your shoes I think I might try to store up enough carry-forward to let me contribute enough to avoid the 60% band in future for as many years as possible.

That would be a gamble on future changes to the laws.

Mistermeaner

Mistermeaner wrote: »

So my threshold income is 125k (everything apart from company contribution)

My adjusted income is 133k (as above +8k my employer contributes)

So if I get a 17k payrise regardless what I do re ss etc i will hit the taper

Are my calcs above correct?

Assuming so if I work really hard and get another 20K bonus taking my threshold income to 145K and my adjusted income to 153K then I guess i've entered the territory of annual allowance withdrawal?

Ignoring carry forward for simplicity I have a choice at this point I guess to :

a) continue paying into the pension, accepting that i don't get any tax relief on contributions above the reduced annual allowance

Or

b) keep the money outside of the pension, pay tax and national insurance on it, but thenm either enjoy the benefit of it today or look to invest it in a LISA (or other products) in order to get some tax relief.... draw back with this is that my pre-tax income may exceed 100K and hence will be hitting the withdrawal of personal allowance


Have I understood things correctly?


Is it deliberate that the personal allowance withdrawal and annual allowance withdrawal all seem to coincide in a (horrific) perfect storm


Finger crossed labour never see power or im moving to switzerland (genuinely my work would allow that)

Mistermeaner

Bump

6 more letters