Avoiding/Mitigating 40% tax?

AliceBanned

Ps an error referring to OP I meant workerdrone!

Dazed_and_C0nfused

AliceBanned said:

I am about to go just over that threshold as I recently got promoted, (after 3 years trying) and also had already done some overtime. The promotion takes me just over into the current 40% threshold. I also want to avoid paying higher rate tax and am thinking of an AVC as I need to add to my pension anyway. I'm in the Local Gov Pension scheme and it has an AVC with Prudential. For me I am only just looking into it and also not particularly financially literate Marcon - but there is nothing wrong with wanting to avoid the higher rate after all the hard work. The higher rate tax has hit more people as it has been frozen for some time I believe, and with inflation it is going to mean 1/10 people are liable to pay it. It's good to look into the options and I'm trying to understand whether a SIPP or AVC is best for me. 

Similarly I feel if I pay the higher rate my overtime would be almost cancelled out, and I did the overtime because I need the money at the moment. 

Also with the increment there is back pay, presumably the same for your wife. How does this work in terms of tax anyone - presume it adjusts later in the year as there will be one salary payment that is including back pay? 

For most higher rate payers the worst case is you would receive 58% of your overtime pay.  Possibly a bit less if it qualifies for pension purposes but then you have the benefit of a larger pension in due course if it does.

For a minority who would be liable to HICBC, tapered Personal Allowance, or loss of Marriage Allowance it could be worse.

But it would be very rare be impacted to the degree you would end up with nothing.

CSL0183

A Band 7 will be nowhere near the £50,270 figure to be fair as they would need to earn around £57,500 to trigger that after a 12.5% pension reduction. Top of Band 7 is about £10k short of that so even if working bank holidays, weekends or even picking up a bank shift, it’s doubtful £57,500 will be achievable. 

If you live in Scotland however then it’s a horrible situation to be in as they have a marginal 53% tax band in Scotland between £43,662 and £50,270 due to the NI discrepancy. At that point you would be looking to bring taxable pay down below £43,662. Potentially using salary sacrifice for electric car, childcare vouchers etc.