No personal allowance

richd70

Hi
I just want to make sure I'm not missing anything silly that I should be doing. I'm in the fortunate position of earning relatively well (at least I think so), but as such, it seems I am no longer eligible to have a personal allowance (ie I earn over £125k, when my bonus is included). I just wanted to make sure I wasn't missing anything and to be as tax efficient as possible? My basic is £112k, my bonus is £36k and my employer pays 6% towards my pension (and then matches a further 6% if I contribute 6%). Any advice or it is what it is?
Thanks

[Deleted User]

You are paying 13440 into your pension making your taxable salary 134560. At that level you would indeed lose all of your personal allowance entitlement.

Dazed_and_C0nfused

Personal Allowance is calculated by reference to your adjusted net income - this can be reduced by pension contributions (and Gift Aid) and these can mitigate the effective tax rate of 60% on ANI between £100k and £125k.

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

richd70

Interesting. So if my employer contributes 12% into my pension and I contribute 12% (I assume it is calculated on the basic), so that would be 24% of £112k = £26.88k. Does that provide me with an adjusted net income of £148k - £26.88k = £121.12k? Which is under the £125k threshold? Plus any charity donations with gift aid. Does this bring back my personal allowance?

Dazed_and_C0nfused

You cannot deduct employer contributions.

You start to lose your Personal Allowance once your adjusted net income is £100,002.  And it is all gone by £125,000 on a sliding scale of each £2 of income you lose £1 of Personal Allowance.

So if for example you had ANI of £122,000 you would still get a Personal Allowance of £1,500

122,000 - 100,000 = 22,000 ÷ 2 = 11,000
Personal Allowance 12,500 - 11,000 = 1,500

The tax rate on that £22,000 is 60%.
40% is charged in tax.
20% because you have lost £11,000 Personal Allowance so more income is taxed (£11,000 x 40% = £4,400)

richd70

Thanks for the reply, dazed.
Damn, everything over £100k, that seems harsh! So I would have to contribute a lot more into my pension and donate a lot more to charity to bring my ANI down that much?
@[Deleted User], how did you get £13440 from my 6% contribution? Isn't that 12% of my basic, rather than 6%? Or have I calculated it wrong?
So am I doing everything I should be doing to be tax efficient then?

pphillips

richd70 said:

So am I doing everything I should be doing to be tax efficient then?

There are a couple of investments that have contributions topped up by the government:
Lifetime ISA - if you are under 40
Junior SIPP - if you have children 

richd70

Sadly, I'm over 50, so that's the lifetime isa out the window. I do have two children, but, I have stocks & shares JISAs setup for them, would a SIPP be better? 

[Deleted User]

richd70 said:

Thanks for the reply, dazed.
Damn, everything over £100k, that seems harsh! So I would have to contribute a lot more into my pension and donate a lot more to charity to bring my ANI down that much?
@[Deleted User], how did you get £13440 from my 6% contribution? Isn't that 12% of my basic, rather than 6%? Or have I calculated it wrong?
So am I doing everything I should be doing to be tax efficient then?

I took from your first post that you were paying 6% plus an additional 6% matched by your employer. Presumably that is not the case. As you know bonuses generally do not constitute pensionable income.

I guess that makes your ANI £141280.

richd70

[Deleted User] said:

I took from your first post that you were paying 6% plus an additional 6% matched by your employer. Presumably that is not the case. As you know bonuses generally do not constitute pensionable income.

I guess that makes your ANI £141280.

Thanks for clarifying, I thought I was missing another trick there. As it happens, that is what I am doing, but it hadn't said that it my post, so thought would just check. 

DoctorStrange

Increasing your pension contributions to c£48k (assuming you didn't max last year's allowance) should get you to the  c£100k mark, which would restore your PA.

As you're over 50, this might be the best option for you given the dreaded 62% tax rate.