Preparing for below 60% tax next year

btcp

I am trying to prepare not to pay 60% tax for the next tax year, and did some preliminary calculation. I need to enrol in the next year benefits this month and the most important for me is to define how much I pay into pension as a salary sacrifice.

Taxable income - 135k:
PAYE salary 100k
Vesting stocks 15k
Bonus 15k
Taxable benefits 5k

To pay tax below 60% I need adjusted net income to be below 100k, say 99k. I am planning to reduce it via the pension salary sacrifice, so 135-99=36k I need to sacrifice into pension, which is 36% of my PAYE salary every month. Is that correct, or do I miss anything?

Thank you!

Snakey

First, are you sure you have got everything?
- the "dividend allowance" and "savings interest allowance" are in fact nil-rate bands so any income you get from those sources needs to be included.
- how confident are you in your bonus estimate, and when is your salary review? Your £1k margin for error would be more than wiped out by a 3% pay rise in October (say).

Second, keep one eye on your annual allowance (including brought-forwards if you've got any) as you won't get tax relief on the excess. Count everything your employer puts in as well as your own £36k, and do some research on the AA reduction if your employment income (inc pension conts) is above £150k.


p.s. I'm assuming your vesting stocks count as income but I don't actually know that, I'm just going by what you say.

btcp

Snakey wrote: »

First, are you sure you have got everything?
- the "dividend allowance" and "savings interest allowance" are in fact nil-rate bands so any income you get from those sources needs to be included.
- how confident are you in your bonus estimate, and when is your salary review? Your £1k margin for error would be more than wiped out by a 3% pay rise in October (say).

Second, keep one eye on your annual allowance (including brought-forwards if you've got any) as you won't get tax relief on the excess. Count everything your employer puts in as well as your own £36k, and do some research on the AA reduction if your employment income (inc pension conts) is above £150k.


p.s. I'm assuming your vesting stocks count as income but I don't actually know that, I'm just going by what you say.

Yes, I have 123 account so can include interest. I just didn’t mention it as it is nil rate so should not impact the calculation. I do t have any dividend, I suppose I only gain it when I sell stocks? I wasn’t planning to.

I am quite confident on the bonus, it is % of a salary and historically the pay out is close to 100% in the last 4 years. I didn’t include a future pay raise, 100k is my current salary and I don’t expect any promotions in the next tax year.

As for the annual allowance, are you saying I need to count employer’s contribution to pension too? I hoped it is only my bit... if not, this is not a very viable option for me.

Vesting stocks count as income, I read the policy provided by my work and it says they will sell enough stocks to cover income tax.

Thank you!

btcp

What I am actually not sure about is at what amount my stocks will vest, as they vest each quarter. They can go lower, but they can also go higher during the year. If they go higher I may end up paying higher tax anyway

polymaff

btcp wrote: »

Yes, I have 123 account so can include interest. I just didn’t mention it as it is nil rate so should not impact the calculation.

It does in that, although you'll pay 0% tax on it - it'll still count toward the 100k total you're trying to keep under.

btcp

polymaff wrote: »

It does in that, although you'll pay 0% tax on it - it'll still count toward the 100k total you're trying to keep under.

Ah, that’s good to know thank you! Even though it’s less than a thousand a year it can push me over 100k.

Dazed_and_confused

What relevance has £1,000 got?

Your Personal Allowance, the loss of which can push you into the 60% position, is based on adjusted net income.

Once that is established you will be taxed based on your taxable income. Which can be vastly different to your adjusted net income, particularly where "relief at source" pension contributions are involved.

You could have £500 is savings interest which is taxed at the savings nil rate but your overall tax bill could still increase by £100.