Higher earner - tax efficiency

BlobCore

Hi All,
Hope you can advise on most efficient way to minimise tax / maximise pension tax relief in the following circumstances. I'm fortunate enough to have landed a new job with basic pay of £100k and expected annual bonus of £30k. Obviously pushing me into next tax bracket where I believe personal allowance is also tapered away?

Of the current £100k approx 20% annually will go into a SIPP receiving an automatic relief / uplift of 25%. My employer run the bare minimum workplace pension they can get away with so when it kicks in around 2 months from now they'll take 5% from my pre tax salary and add their own 3%. I presume in order to claim higher rate relief I declare the total contribution on next years SA form and get the relief retrospectively on next years tax code?

But what about keeping under the £100k threshold? Do I need to contribute the entire bonus to SIPP?

Thoughts welcome.

Blob

Dazed_and_C0nfused

You need to read up on adjusted net income.

Your salary/bonus aren't the only considerations income wise.

Remember contributions to a SIPP will reduce your adjusted net income but not your taxable income - they increase your basic rate band instead, meaning you can pay more 20% tax and less 40%.

BlobCore

Thanks. Is there a simple calculator anywhere I can pump the numbers into?

[Deleted User]

You state that your basic salary will be £100k. After the 5% pension payment your taxable pay is £95000 and, when the bonus added, £125000. 

To have your adjusted net income below below £100k you would need to make a SIPP contribution of £20001, grossed up to just over £25001. Note that £20001 is quite different from the 20% of gross salary of £100k that you have mentioned as you would be making the payment from your net income after tax.

You don’t have to wait for the additional tax relief as you can inform HMRC of the SIPP payment and have your tax code adjusted accordingly. As you know, you will confirm the payment on your self-assessment return.