Reducing my income to reduce tax?

code_hunter_2

Hello. I hope someone can offer advice... in the tax year 2018-2019, I crept into the 40% tax band and really grudges paying the Additional tax! I am an employee within a local authority in Scotland and have money going into a pension every month. In the past, this has helped keep myself in the lower tax bandings. However, property income (joint landlord with husband), along with my salary, has made me creep into the 40% tax banding.
I can not apply to increase my pension contributions until April 2020 but that would help for the tax year 2020-2021.

How can I decrease how much I am taxed for this current tax year, 2019-2020? I need to reduce my income by about £3000/£3500. Can I gift money to family? My sister is going through a separation. Or can I gift my husband the money as he is planning on quitting his job to start a new business? I am confused ... am I still taxed before gifting? Any other thoughts or advice are very welcome.

Andy_L

1. You could go part time so you earn less
2. Pay  money into a private pension as well as the LGPS
3. Gift the money to a charity
4. If you husband isn't a HRT payer have him take the profit from the property instead of you

spadoosh

Ive never understood the desire to earn less so you can avoid paying proportionately more tax on the additional income when so close to the threshold. You only pay the additional tax on anything you earn over the tax threshold, on a basic level it just reduces your hourly pay. So up to 20% youre paid say £8 per hour and when its 40% your paid £6 per hour. So you are foregoing earning £6 so you can avoid paying £2. 

Easiest way i see you reducing your tax burden comes in the form of the rental property. Id be looking at getting on top of any works modernisation that might need doing to offset the rental income. But obviously youll need to pay out for the works. Is your PAYE income below the higher tax threshold?

code_hunter_2

Andy_L said:

1. You could go part time so you earn less
2. Pay  money into a private pension as well as the LGPS
3. Gift the money to a charity
4. If you husband isn't a HRT payer have him take the profit from the property instead of you

Hi Andy, 
1- Very tempting but my manager will not entertain this so it would mean finding a new job.
2. I will look at this 🙂
3. I have considered this but not acted... will keep in mind as an option.
4. My husband is not a HRT payer. The HMRC say that profit needs to be 50/50 for joint landlords and I am not sure how I could prove otherwise! I do think this would be a good solution though.
Thank you for responding 😊

code_hunter_2

spadoosh said:

Ive never understood the desire to earn less so you can avoid paying proportionately more tax on the additional income when so close to the threshold. You only pay the additional tax on anything you earn over the tax threshold, on a basic level it just reduces your hourly pay. So up to 20% youre paid say £8 per hour and when its 40% your paid £6 per hour. So you are foregoing earning £6 so you can avoid paying £2. 

Easiest way i see you reducing your tax burden comes in the form of the rental property. Id be looking at getting on top of any works modernisation that might need doing to offset the rental income. But obviously youll need to pay out for the works. Is your PAYE income below the higher tax threshold?

Hello. Yes, I get your point regarding still earning additional money, although paying more tax. I think I’ve felt it more recently due to the changes in landlord tax too. 

Good idea about modernisation of the rental property. I had not really considered that. My actual salary on paper is in the higher tax threshold but my pension comes out before I am taxed, which nicely brings me below the 40% threshold. I think I can increase my pension contributions from April 2020. 

Thanks for your time.

01afraser4

code_hunter_2 said:

spadoosh said:

Ive never understood the desire to earn less so you can avoid paying proportionately more tax on the additional income when so close to the threshold. You only pay the additional tax on anything you earn over the tax threshold, on a basic level it just reduces your hourly pay. So up to 20% youre paid say £8 per hour and when its 40% your paid £6 per hour. So you are foregoing earning £6 so you can avoid paying £2. 

Easiest way i see you reducing your tax burden comes in the form of the rental property. Id be looking at getting on top of any works modernisation that might need doing to offset the rental income. But obviously youll need to pay out for the works. Is your PAYE income below the higher tax threshold?

Hello. Yes, I get your point regarding still earning additional money, although paying more tax. I think I’ve felt it more recently due to the changes in landlord tax too. 

Good idea about modernisation of the rental property. I had not really considered that. My actual salary on paper is in the higher tax threshold but my pension comes out before I am taxed, which nicely brings me below the 40% threshold. I think I can increase my pension contributions from April 2020. 

Thanks for your time.

Similarly to spadoosh, I find it hard to comprehend this illogical thinking.

This may seem personal, but what is motivating you to earn less money? Just because you are in the 40% tax bracket, you are still getting more "take home pay" than someone that is a basic rate taxpayer.

It's similar to people who claim they lose out if they do overtime and this takes them into the higher rate of tax. As spadoosh mentions, yes you are taxed more, but you are still earning additional income. Is it a matter of principle where you do not agree with the notion of taxation?

xylophone

You could open a stakeholder (or other personal pension and contribute to that).
See https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pension-contributions-qa/
under
Q:
My client is an active member of his employer’s defined benefit pension scheme. He also wants to make a personal pension contribution. How do I calculate the maximum personal contribution allowed for tax relief? He has a pensionable salary of £37,500 and pays 3% employee contribution.

You could pay AVCs in LG scheme?

Or AVC? See https://www.pru.co.uk/rz/localgov/

Your could change the ownership of the property to 99/1 on a beneficial basis so that your husband gets most of the income?
https://www.whitefieldtax.co.uk/declaring-rental-income-on-jointly-owned-properties/

code_hunter_2

Xylophone- many thanks for your thoughts and the links. This gives me some very helpful options to consider.

01aFraser4 & Spadoosh- I am not at all against paying tax and always declare everything  on my property self-assessment. I work 60+ hours in an average week for a Local Authority (on a 35 hr contract) and I am keen to see how I can make the most of the money that I do earn, whether it be planning for the future or making good decisions on how I manage it now 🙂

Dazed_and_C0nfused

Reducing my income to reduce tax?

I need to reduce my income by about £3000/£3500

Just to be clear, the only realistic way you can do that is by earning less in the first place, making net pay pension contributions or giving up your pay under salary sacrifice.

Relief at source pension contributions such as those paid to a personal pension or SIPP do not reduce your taxable income.  They simply increase the amount of your basic rate tax band, which in turn can reduce the amount of higher rate tax payable.  Same with Gift Aid.

code_hunter_2

So it looks like I am best to increase my net pay pension contributions. I know this is possible with my employer although not as straightforward as I would like! Thank you. 

Dazed_and_C0nfused

The overall effect can be broadly the same tax wise but as you seem to want to actually reduce your income for some reason then relief at source contributions won't help.

A lot of posters on here want to minimise higher rate tax and both relief at source pension contributions and Gift Aid can achieve this but they don't actually reduce your taxable income.