Is it worth dropping my hours to reduce 40% tax

agcsps07

Hi,
I currently work FT and earn 45k.  I also receive a military pension of 17k.  My personal allowance is split over the two incomes and I pay 5% into my pension ( current job).  When I add up all of the NI/tax/pension contributions it basically wipes out my mil pension.  I'm trying to work out what hours I could drop back to to get myself under the 40% threshold but every time I input it into the tax calculator I'm getting different answers.  I'm doing each income separately to ensure Ni isn't taken off the pension income.  It should be easy but maths is not my great strength.
  Just to add I appreciate many people may roll their eyes that I have the luxury to consider cutting my hours but there is also the intent to free up funding ( in my charity) to employ a PT admin person if my wages were reduced so yes, it's partly personal and also to help the small charity I work for.

Is there a magic formula I should be using? I would ring HMRC but I'm guessing they might roll their eyes at me asking a hypothetical question.

penners324

Up your pension contributions?

Why deprive yourself the money you're earning?

Flugelhorn

paying 40% means you still get 60% of the pay,

your military pension isn't "wiped out" it is just part of your total income used to pay NI / Tax / pension. 

agcsps07

We don't use a salary sacrifice scheme so there is no tax gain to be hand until I claim it back.  Not sure I'm depriving myself if the reduction isn't too big -  I'd rather have the quality of life tbh.

Jeremy535897

You have a basic rate band of £37,700 (England and Wales). You pay tax on £17,000 - £12,570 = £4,430 of your military pension (assuming your personal allowance is set against it, and you have no other taxable income or allowances). £37,700 - £4,430 = £33,270, which is what you can earn without paying higher rate tax. Gross this up for 5% pension and you get £35,021 (£33,270 divided by 0.95). That is the salary you can earn without paying higher rate tax. NIC does not affect the outcome. No doubt your figures are estimates that you can just tweak my calculations for.

penners324

Perfectly reasonable to do see to give yourself more free time 

agcsps07

Flugelhorn said:

paying 40% means you still get 60% of the pay,

your military pension isn't "wiped out" it is just part of your total income used to pay NI / Tax / pension. 

I do understand the 40/60 rule but it's about quality of life.  If I can forgo £300 or so a month to gain maybe a 4-day week then it's worth the sacrifice.  When I add it all up it is in effect my mil pension gone and I'm more than happy to pay my taxes have done so for many years with that income but I'm considering the quality of life now and just looking at all the options.

molerat

To get out of higher rate tax you are likely to have to go down to 3.5 days and lose around £600 pm from your take home

billy2shots

I'm all for reducing hours. 

Alternatively can't you privately top up your pension, automatically getting 20% back then claim for the additional 20%?