Advice on limiting tax when receiving 2 salaries/1 salary plus pension (Salary Sacrifice)

Jacko371

I'm looking for some advice on my future situation and what the most beneficial route will be for me to receive the most/limit tax.

I am currently receiving a salary for my current role (Role A) which will end in August.

I start a new role (Role B ) in June so will be receiving Salary A + Salary B for 2 months.

As of September I will begin to receive a pension for Role A - so will receive Salary B + Pension from that point onwards.

Example figures are;

Salary A = £40k
Salary B = £55k
Pension = £10k

There are various benefits for Role B that can be taken advantage of through Salary Sacrifice. I will be taking full advantage of the Pension Salary Sacrifice (2% contribution from me), however I was wondering if there was a sweet spot for taking on additional benefits to limit my tax? 

Once I start my new role I will be in the 40% tax bracket quite heavily for a 2 month period (£95k) and then only partially from September (£65k). I'm under the impression that any benefits which could be sacrificed in a lump sum within those 2 months would have a greater benefit (due to almost 50% of my income being taxed at 40%), however I could be incorrect on this.

As I haven't started my new job yet I am unsure of the exact costs of each benefit, however I do know which are subject to income tax and/or NI, examples are below;

No Income Tax or NI
Pension
Cycle to Work
Holiday Buying

No NI
Private Healthcare
Private Dental
Critical Illness cover
Gym Membership

I have tried to find online calculators to work it out, but they all seem to be focused on pension salary sacrifice only.

Any advice is appreciated.

Jeremy535897

Your gross income will be around £68,000, so you would need to make substantial contributions to reduce your adjusted net income below £50,270. Private healthcare etc do not reduce adjusted net income, although you don't pay NIC.

You don't have to time things to precise months in a tax year. You might possibly gain a short term cash flow benefit by doing so, but by the end of the tax year it will have worked itself out.

Albermarle

will be taking full advantage of the Pension Salary Sacrifice (2% contribution from me),

Apart from the tax issue, contributing 2% to a pension scheme is so small, it will have little effect on building up a good pension pot.( unless maybe the employer is ultra generous and adding a very large %) Presuming you have not too many years to retirement as you are already taking a pension, then normally you should be looking at maxing pension contributions as much as you can afford. Especially as you have the possibility to gain 40% tax relief and most likely only pay 15% tax on the income from it. That is a massive gain .

If you have savings , you could partly live off these, if bumping up your salary sacrifice % to 25% + would not be affordable.

Grumpy_chap

If you are already drawing a pension, does that restrict the amount of further pension contributions eligible for tax relief?

Jeremy535897

Grumpy_chap said:

If you are already drawing a pension, does that restrict the amount of further pension contributions eligible for tax relief?

Only if you have flexibly drawn down on a money purchase scheme and are subject to the MPAA of £4,000 a year.

Grumpy_chap

Jeremy535897 said:

Grumpy_chap said:

If you are already drawing a pension, does that restrict the amount of further pension contributions eligible for tax relief?

Only if you have flexibly drawn down on a money purchase scheme and are subject to the MPAA of £4,000 a year.

The OP does not seem to have stated what the pension is that will be paid from Role A.

Jeremy535897

Grumpy_chap said:

Jeremy535897 said:

Grumpy_chap said:

If you are already drawing a pension, does that restrict the amount of further pension contributions eligible for tax relief?

Only if you have flexibly drawn down on a money purchase scheme and are subject to the MPAA of £4,000 a year.

The OP does not seem to have stated what the pension is that will be paid from Role A.

No, but the fact that a particular sum is stated as receivable suggests that it is not a flexible withdrawal chosen by the OP.

Jacko371

Jeremy535897 said:

Your gross income will be around £68,000, so you would need to make substantial contributions to reduce your adjusted net income below £50,270. Private healthcare etc do not reduce adjusted net income, although you don't pay NIC.

You don't have to time things to precise months in a tax year. You might possibly gain a short term cash flow benefit by doing so, but by the end of the tax year it will have worked itself out.

Ah yes Income Tax is averaged out over the Financial Year, thanks for clarifying. There aren't enough Salary Sacrifice options to take me below the 40% threshold, however I was wondering if there was a calculator to work out the benefits of NIC sacrifice.

Albermarle said:

will be taking full advantage of the Pension Salary Sacrifice (2% contribution from me),

Apart from the tax issue, contributing 2% to a pension scheme is so small, it will have little effect on building up a good pension pot.( unless maybe the employer is ultra generous and adding a very large %) Presuming you have not too many years to retirement as you are already taking a pension, then normally you should be looking at maxing pension contributions as much as you can afford. Especially as you have the possibility to gain 40% tax relief and most likely only pay 15% tax on the income from it. That is a massive gain .

If you have savings , you could partly live off these, if bumping up your salary sacrifice % to 25% + would not be affordable.

My employer contributes 12% to the pension, so it's 14% overall. I'm over 25 years away from state retirement age.

Grumpy_chap said:

Jeremy535897 said:

Grumpy_chap said:

If you are already drawing a pension, does that restrict the amount of further pension contributions eligible for tax relief?

Only if you have flexibly drawn down on a money purchase scheme and are subject to the MPAA of £4,000 a year.

The OP does not seem to have stated what the pension is that will be paid from Role A.

It's a military pension, so a set amount until age 55 when CPI annual increases will kick in.

Albermarle

My employer contributes 12% to the pension, so it's 14% overall. I'm over 25 years away from state retirement age.

You have a good employer! However to go back to your original question, the easiest way to reduce your 40% tax is to contribute more to this pension. Higher rate tax relief is very generous and one day it is likely to be stopped/modified as it costs the Treasury so much.

Although you have 25 years away from state retirement age, most pensions can start to be taken 10 years before that, so if the pot is big enough, retiring well before state pension age should be easily achievable.

pjread

I'll join the "throw as much as you can into the pension, unless you're likely to hit the LTA" brigade here.

Presuming you were living well enough of the 40k, and will be getting 55k+10k.....  I would be inclined to look at ~30% (get total taxable income under 50k/down to basic rate - no idea if child benefit is in play?) unless you need the extra cash immediately.