Earning 130k is it no brainer to max pens cont?

1980ds

If earning in the region of 130k incl bonus is it a no brainer to maximise pension contributions given that you lose £1 of personal allowance for every £2 earned over £100k??
Once maximised pension contributions are there any other tax efficient investments?
TIA

1980ds

Meant to add, not that I’m anywhere near it but given that in effect you pay 60% tax on salary 100-125k is it still better to exceed the LTA as the amount over the LTA would be taxed at 40%?

Mutton_Geoff

1980ds said:

Meant to add, not that I’m anywhere near it but given that in effect you pay 60% tax on salary 100-125k is it still better to exceed the LTA as the amount over the LTA would be taxed at 40%?

The amount over the LTA is taxed at 25%, not 40%. The balance is then taxed at your marginal rate when you draw it. You can also draw 25% of it tax free (limited up to 25% of the LTA).

Can you sal sac your pension input as well? You'll save another 2% NI in that way.

Scrudgy

1980ds said:

If earning in the region of 130k incl bonus is it a no brainer to maximise pension contributions given that you lose £1 of personal allowance for every £2 earned over £100k??
Once maximised pension contributions are there any other tax efficient investments?
TIA

For me it’s a no brainier to stuff as much into your pension as you can to bring your salary below the 100k threshold. You might as well max it to the full 40k allowance unless you are getting close to the lifetime allowance already.

100% of salary going into pension verses 60% tax on the salary between £100k and £125k really is a no brainer.

salary sacrifice as a monthly percentage saves NI as stated above by mutton Geoff

tacpot12

Agree with all the advice above to max out your pension contributions. Once this is done, you should save into ISAs. If you max out your ISA limit for the year (£20K), you could put some money in Premium Bonds (the limit is £50K) or into a Savings account paying interest (you can earn upto £500 interest a year and pay no tax on the interest). You can also earn upto £2000 in dividends each year without paying tax, or have capital gains of £12,300, so you can open a General Investment account and invest in shares, mutual funds, investment trusts all, so there are plenty of opportunities to save/invest without paying extra tax.  

Dazed_and_C0nfused

tacpot12 said:

Agree with all the advice above to max out your pension contributions. Once this is done, you should save into ISAs. If you max out your ISA limit for the year (£20K), you could put some money in Premium Bonds (the limit is £50K) or into a Savings account paying interest (you can earn upto £500 interest a year and pay no tax on the interest). You can also earn upto £2000 in dividends each year without paying tax, or have capital gains of £12,300, so you can open a General Investment account and invest in shares, mutual funds, investment trusts all, so there are plenty of opportunities to save/invest without paying extra tax.  

You have to be careful with dividend income though in the op's situation.

They could make pension contributions to bring the employment element of their adjusted net income down to £100k

But if they have £2,000 dividends then yes they will be taxed at 0% on that £2,000 but their ANI will be £102k and they would lose £1,000 Personal Allowance giving an effective tax rate of 20% on the dividends.

atush

Max your pension

Mutton_Geoff

Scrudgy said:

For me it’s a no brainier to stuff as much into your pension as you can to bring your salary below the 100k threshold. You might as well max it to the full 40k allowance unless you are getting close to the lifetime allowance already.
100% of salary going into pension verses 60% tax on the salary between £100k and £125k really is a no brainer.

At worst case, you'll pay 55% tax on LTA excess so saving tax at 60% then paying it at 55% is still a saving even if you bust the LTA.

BuildTheWall

Mutton_Geoff said:

Scrudgy said:

For me it’s a no brainier to stuff as much into your pension as you can to bring your salary below the 100k threshold. You might as well max it to the full 40k allowance unless you are getting close to the lifetime allowance already.
100% of salary going into pension verses 60% tax on the salary between £100k and £125k really is a no brainer.

At worst case, you'll pay 55% tax on LTA excess so saving tax at 60% then paying it at 55% is still a saving even if you bust the LTA.

Why do I see two different rates talked about for LTA? Is it 25% or 55%?

EdSwippet

BuildTheWall said:

Why do I see two different rates talked about for LTA? Is it 25% or 55%?

On amounts above the LTA, tax treatment is one of the following:

• If taken as normal withdrawals, 25% LTA penalty and then normal income tax on the remaining 75%. This works out to 40% for basic rate taxpayers, and (neatly) 55% for higher rate taxpayers. For additional rate taxpayers, it would come to 58.75%. And for people in the 60% bubble bracket, it would come to 70%. Although, anybody who is paying attention will not pay these latter two rates, because the lump sum rate is lower.
• If taken as a lump sum, 55% flat tax.

Because this is such a complete dog's dinner of complexity and differing rates, most journos and commentators will pick on either the 25% LTA penalty or the 55% flat rate. 

ratechaser

Absolutely max your pension if you don't have any other pressing need for the money!