Staying under the 40% tax bracket?

Nowherefast

Hi all I am just under 40 years old and Single I would like to know what’s the best way to stay under the 40% tax bracket ?
My current earnings this year are 38k and with Overtime I will exceed 50k come April 2023 .
I pay just under £50 into my Pension each week .

I read a good way is to pay more into my pension to keep under the bracket?

I do understand  40% is only applied to earnings over 50k but I rather it benefit me than get taxed 40% as don’t see the point me putting all extra hours in to then get taxed in this bracket.

suggestions welcome.

Dazed_and_C0nfused

Which method is used to pay the £50 info your pension,

Net pay (reduces your pay for tax purposes so your P60 has a lower pay figure)

Relief at source (doesn't reduce your taxable pay but you get 25% added by the pension company)

Salary sacrifice

And is your pension a Defined Benefit or Defined Contribution scheme?

400ixl

What type of pension payment is it?

Is it a salary sacrifice payment made through your employer?

Nowherefast

Dazed_and_C0nfused said:

Which method is used to pay the £50 info your pension,

Net pay (reduces your pay for tax purposes so your P60 has a lower pay figure)

Relief at source (doesn't reduce your taxable pay but you get 25% added by the pension company)

Salary sacrifice

And is your pension a Defined Benefit or Defined Contribution scheme?

Salary sacrifice and Defined contribution 

Nowherefast

400ixl said:

What type of pension payment is it?

Is it a salary sacrifice payment made through your employer?

Salary sacrifice and Defined contribution , employer contributes a percentage also

Albermarle

So if you contribute enough to your pension that your salary drops below the 40% tax level ( £50,270) you will not pay any 40% tax.
In any case £50 a week ( approx 6%) is quite low for a 40 year old to be contributing. Unless of course your employer is one of the more generous ones and adding > 10 %

Nowherefast

Albermarle said:

So if you contribute enough to your pension that your salary drops below the 40% tax level ( £50,270) you will not pay any 40% tax.
In any case £50 a week ( approx 6%) is quite low for a 40 year old to be contributing. Unless of course your employer is one of the more generous ones and adding > 10 %

Yeah I agree it is low , Been paying it for a few years now at this rate as always feel I would like to have and enjoy money available to me now as never know if we reach Pension age to enjoy it, But also dont want to pay 40% tax on my earnings over 50k so its a bit of a dilemma 😬. Not sure what to do to make it benefit me b either pay more into my Pension or do less overtime so I don't reach that threshold?

Correct my employer contribution is 10% 

Choirgrl

Keep keep in mind that at the point your tax rate increases from 20% to 40%, your NI rare decreases from 13.25% to 3.25% ( or 12.5% to 2.5% from next month). I find a lot of people forget that, so think the impact of moving into the higher tax bracket is going to be twice what it actually is.

As well as pension contributions, if you donate to charity by Gift Aid and tell HMRC they will adjust your tax code and it will reduce the amount you pay 40% on. 

Re doing less overtime, additional money is additional money, just depends if the time/energy/effort/ etc it takes youto take home an extra  £66.75 now will still be worth it to take home £57.50 instead. 

Nowherefast

Choirgrl said:

Keep keep in mind that at the point your tax rate increases from 20% to 30%, your NI rare decreases from 13.25% to 3.25% ( or 12.5% to 2.5% from next month). I find a lot of people forget that, so think the impact of moving into the higher tax bracket is going to be twice what it actually is.

As well as pension contributions, if you donate to charity by Gift Aid and tell HMRC they will adjust your tax code and it will reduce the amount you pay 40% on. 

Re doing less overtime, additional money is additional money, just depends if the time/energy/effort/ etc it takes youto take home an extra  £66.75 now will still be worth it to take home £57.50 instead. 

Hi thanks for reply do you 40% instead of 30% ? ah yes I just read that about the NI contribution so that means if I go above £50.270 earnings , so 40% bracket I will be worse off ?

Choirgrl

Nowherefast said:

Choirgrl said:

Keep keep in mind that at the point your tax rate increases from 20% to 30%, your NI rare decreases from 13.25% to 3.25% ( or 12.5% to 2.5% from next month). I find a lot of people forget that, so think the impact of moving into the higher tax bracket is going to be twice what it actually is.

As well as pension contributions, if you donate to charity by Gift Aid and tell HMRC they will adjust your tax code and it will reduce the amount you pay 40% on. 

Re doing less overtime, additional money is additional money, just depends if the time/energy/effort/ etc it takes youto take home an extra  £66.75 now will still be worth it to take home £57.50 instead. 

Hi thanks for reply do you 40% instead of 30% ? ah yes I just read that about the NI contribution so that means if I go above £50.270 earnings , so 40% bracket I will be worse off ?

Yes, I meant 40%. (Sorry for the typo, I’ve corrected it.)

Worse off (at least for me) depends how you look at it. Once you’re above the threshold then you’re paying a higher total deduction (tax plus NI) on every additional £ than you are below it, but you’re still taking home more than if you earn below the threshold. The question is, is 57.5% of something worth  more to you than 100% of nothing plus the none monetary benefits you get of not working the overtime (e.g. more time with family).

Nowherefast

Choirgrl said:

Nowherefast said:

Choirgrl said:

Keep keep in mind that at the point your tax rate increases from 20% to 30%, your NI rare decreases from 13.25% to 3.25% ( or 12.5% to 2.5% from next month). I find a lot of people forget that, so think the impact of moving into the higher tax bracket is going to be twice what it actually is.

As well as pension contributions, if you donate to charity by Gift Aid and tell HMRC they will adjust your tax code and it will reduce the amount you pay 40% on. 

Re doing less overtime, additional money is additional money, just depends if the time/energy/effort/ etc it takes youto take home an extra  £66.75 now will still be worth it to take home £57.50 instead. 

Hi thanks for reply do you 40% instead of 30% ? ah yes I just read that about the NI contribution so that means if I go above £50.270 earnings , so 40% bracket I will be worse off ?

Yes, I meant 40%. (Sorry for the typo, I’ve corrected it.)

Worse off (at least for me) depends how you look at it. Once you’re above the threshold then you’re paying a higher total deduction (tax plus NI) on every additional £ than you are below it, but you’re still taking home more than if you earn below the threshold. The question is, is 57.5% of something worth  more to you than 100% of nothing plus the none monetary benefits you get of not working the overtime (e.g. more time with family).

Yeah I get that, it’s going to be a choice I need to make , I also do think  the 6% I am putting to my pension about £48 a week at my age of 39 may not be enough come retirement so may look at upping that just not sure by how much yet , My employer also adds 10% , But in this current climate I guess any overtime will be beneficial too . 

I don’t think for me at the moment going into the 40% bracket is unavoidable .