Earn c130k, max pens cont - what else?

1980ds

Hi all
Just looking to get some ideas or a viewpoint on my current situation. So naturally want to avoid the dreaded 60% tax so currently pay around £30k pension contributions and a 130k salary. Employer pays 8k pension each year so I’m not far off paying the 40k maximum pension contributions.
i have brought mortgage down to 14 years (age is a 39). Happy enough with holidays and general spending with 2 young kids. 

Is there anything else I can put my money into to avoid the 60% tax? I currently have gift aid donation of approx £250 pa.
any thoughts appreciated!
thanks 

Jeremy535897

How near to having £100,000 of adjusted net income are you if your salary is £130,000 and you pay £30,250 in pension contributions and gift aid, even if these are the gross figures?

1980ds

I purposefully split an annual bonus to ensure I am just under the 100k adjusted net income. The ‘problem’ is that I am now nearing the 40k maximum pension contributions so seeing what other options there are instead of paying 60%.
i appreciate it is a fortunate position to be in so didn’t want it to come across badly!

1980ds

Split the bonus as in take a proportion as salary and additional pension contributions 

Jeremy535897

1980ds said:

I purposefully split an annual bonus to ensure I am just under the 100k adjusted net income. The ‘problem’ is that I am now nearing the 40k maximum pension contributions so seeing what other options there are instead of paying 60%.
i appreciate it is a fortunate position to be in so didn’t want it to come across badly!

The two reliefs that reduce adjusted net income are those you have described, pension contributions and allowable gifts to charities. If you are likely to have this problem going forward you could consider setting up your own charity to make contributions to, but it is quite a lot of work and rather a lot of bureaucracy.

Another option is to start your own business (if you have time). If you are married, and your spouse has the time to do a business, you can form a partnership. Even if you do very little in it, you can take the lion's share of any tax loss that arises (for example if the partnership needs a new van on which 100% annual investment allowance can be claimed). When it makes profits, your spouse takes the lion's share (assuming they are not in the same tax bracket as you). The business would have to be run commercially with a view to profit.

Sibbers123

Make use of brought forward pension annual allowances. Or keep some of your annual allowance to carry-forward (you will pay more tax in the year you make less contributions, but in the year you make say £80K contributions you will save more tax due to the 60% marginal rate).

Does your employer offer any employment related securities (share schemes) that are tax advantaged (CSOP, EMI, SIPs)?

Can you sacrifice some of your salary for a fully electric car (fancy a Tesla) as this wouldn't be caught by the salary sacrifice anti-avoidance rules.

You can invest via EIS/SEIS/VCTs but these are obviously high risk and won't reduce your adjusted net income, it will just save you tax overall.

To be honest, there is little you can do as an employee, especially with a gross salary of £160k+

1980ds

Thanks, appreciate that. Has given me some thought for sure. 

1980ds

Thanks sibbers123. I will read up on a few of your points.
I’m reading up about the maximum Lifetime pension contributions and whilst I am probably 10+years off is this something I should consider do you think?  Or will the maximum lifetime allowance increase each year and be in the region of £1.5m in 10 years time?

1980ds

also how do I carry forward pension allowances from prior years? Is this after the event through a self assessment or do I need to flag this up prior to exceeding the current years contributions?
thanks

csgohan4

Annual allowance for pensions is not soley based  on contributions, but also the growth. With that level of salary and contributions, you will reach this very quickly. As you know you can only use up your last 3 years of AA if not maxed them. 

I suggest an IFA, but I suspect not much you can do than what has been said here.  An accountant once said to me either you earn below 100k or earn a hell of a lot more, being around 180k plus.

The recent changes to the tapered allowance threshold was much welcome, but avoided the elephant in the room, which was the AA which is far likely to be breached as you get older. Earning more than 200k is unrealistic for most people also.

Only other way is to cut down your hours so you can get below 100k more easily, sure means less income, but also more time with family/ hobbies. Alot of NHS senior staff are doing this to avoid large pension tax bills sadly. 

https://www.gov.uk/government/publications/pensions-tax-changes-to-income-thresholds-for-calculating-the-tapered-annual-allowance-from-6-april-2020/pensions-tax-changes-to-income-thresholds-for-calculating-the-tapered-annual-allowance-from-6-april-2020

1980ds

Thanks that’s very interesting. Cutting down hours will probably be more in the years to come than now I feel. And I didn’t know the £40k included growth! Has anyone a link to this to explain in layman terms? 

Thanks again