Tax free childcare & Pension Salary Sacrifice

Jeremy535897

mac123 said:

Jeremy535897 said:

As has been said above, salary sacrifice means you agree with your employer that you will take a reduced salary, and in exchange your employer agrees to make contributions to your pension. This is different from making contributions yourself.

Say you have gross earnings, before any pension contributions, of £125,000. Your employer makes pension contributions for you of £12,000 and you make net pension contributions of £12,000. Your adjusted net earnings are £125,000 less £15,000 (£12,000 grossed up at basic rate) = £110,000.

If you choose to make a further pension contribution of £8,000 net (£10,000 gross), your adjusted net earnings fall to £100,000 (being £125,000 less original contribution grossed up £15,000 less new contribution grossed up £10,000). If instead of the new contribution you ask your employer to make a pension contribution on your behalf of £10,000, and in exchange your salary falls to £115,000, your adjusted net earnings still fall to £100,000 (£115,000 less your original grossed up contribution of £15,000).

Thanks!

to make it easy … if my salary is £125k and I opt to sacrifice a % of my salary equal to £30k, would this mean my adjusted net income is under £100k?

So long as your total taxable income is your salary, yes, on an annual basis of course (if you decided to sacrifice salary part way through the tax year, it could only take effect from that point in time). But other income, including interest and dividends taxed at 0%, would add to that taxable income.