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Keeping net adjusted income below £100K

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  • kinger101
    kinger101 Posts: 6,525 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 25 March 2023 am31 9:06AM
    kinger101 said:
    I've been working through my own situation.  It's always made somewhat challenging as a chunk of my income is in restricted stock options, so I only know their value when they vest.  Stock and currency movements mean this is a bit of a rollercoaster.

    My son is currently two so we've been making use of the £2K government contribution, but the nursery hours won't really kick in until Q1 2024.  This year the focus had been dropping below the £100K to retain the £2K contribution.  Which left me with £13.5K AA from 2020/21 still available for 2023/24. I'd also used bonus sacrifice to kick what would have been a chunk of 2022/23 income into next years' pension contribution.

    Prior to the budget, I'd decided I was just going to have to accept losing 15 of the 30 hours, and the £2K.  

    After a bit of head scratching, I'd decided on the following with the new £60K allowance. 

    (a) use the remaining 2020/21 AA this year by making another SIPP contrubution.

    (b) drop my 2023/24 pension contribution down to 5% to get maximum 10% employer match.  Don't sal. sac bonus into the next year.  This will leave me with approx £20K AA to use the in 2024/25 tax year.   This is the key year, as it's the one where I have the most to lose from hitting the £100K as it would be a full year's nursery entitlement.   

    For the 2024/25 tax year, I will then need to sal. sac that bonus and potentially a chunk of March pay as well, but there's a fighting chance of avoiding super tax.  It's a silly dance to have to go through, but I don't see why I should jump off their cliff if I don't have to.

    Why would you not just pay the tax on the excess pension allowance that you breach. That’s better than paying the 60 percent tax trap you’d pay if it was in your income over 100K and you’d lose 2K of tax free child care?from Jeremy’s advice you can keep below 100K and benefit from the kids stuff whilst still going over the 60K pension allowance, they are kept separate apparently. 
    largely because with the numbers I'm taking about, I would end up putting about half my income into a pension and paying tax on some of it twice.  The AA tax charge works if you are slightly over, but you eventually end up in a position where the double tax is more punitive than losing the childcare element.


    "Real knowledge is to know the extent of one's ignorance" - Confucius
  • Adjusted net income includes all taxable income.

    So if your taxable pay is say £99,750 and you have (taxable) interest of £500 and (taxable) dividends of £1,000 then your total taxable income is £101,250.

    If you have no RAS pension contributions or Gift Aid to deduct then that would be your ANI and you would lose £625 of your Personal Allowance.

    The fact that your interest and dividends are all taxed at 0% doesn't stop them being part of your adjusted net income.

    And as I'm sure you're already aware you cannot deduct either net pay or salary sacrifice pension contributions when calculating your adjusted net income 
  • I can’t deduct salary sacrifice pension? This goes against everything I’ve been told!

    I have a salary of 95K, a car allowance of 7K and a bonus of say 20K. That takes my income to 122K.

    However, I pay 8K say into my pension via my salary sacrifice pension contributions (ie it’s taken off my pay before I pay tax), and I sacrifice my bonus to my pension too.

    Hence based on all the advice I’ve been given my net adjusted income would be 94K.

    really confused by your comment about pension. I’ve been told by multiple sources you deduct this. 

    So I also add all my dividends payment and interest payments even if not taxed?
  • kinger101 said:
    kinger101 said:
    I've been working through my own situation.  It's always made somewhat challenging as a chunk of my income is in restricted stock options, so I only know their value when they vest.  Stock and currency movements mean this is a bit of a rollercoaster.

    My son is currently two so we've been making use of the £2K government contribution, but the nursery hours won't really kick in until Q1 2024.  This year the focus had been dropping below the £100K to retain the £2K contribution.  Which left me with £13.5K AA from 2020/21 still available for 2023/24. I'd also used bonus sacrifice to kick what would have been a chunk of 2022/23 income into next years' pension contribution.

    Prior to the budget, I'd decided I was just going to have to accept losing 15 of the 30 hours, and the £2K.  

    After a bit of head scratching, I'd decided on the following with the new £60K allowance. 

    (a) use the remaining 2020/21 AA this year by making another SIPP contrubution.

    (b) drop my 2023/24 pension contribution down to 5% to get maximum 10% employer match.  Don't sal. sac bonus into the next year.  This will leave me with approx £20K AA to use the in 2024/25 tax year.   This is the key year, as it's the one where I have the most to lose from hitting the £100K as it would be a full year's nursery entitlement.   

    For the 2024/25 tax year, I will then need to sal. sac that bonus and potentially a chunk of March pay as well, but there's a fighting chance of avoiding super tax.  It's a silly dance to have to go through, but I don't see why I should jump off their cliff if I don't have to.

    Why would you not just pay the tax on the excess pension allowance that you breach. That’s better than paying the 60 percent tax trap you’d pay if it was in your income over 100K and you’d lose 2K of tax free child care?from Jeremy’s advice you can keep below 100K and benefit from the kids stuff whilst still going over the 60K pension allowance, they are kept separate apparently. 
    largely because with the numbers I'm taking about, I would end up putting about half my income into a pension and paying tax on some of it twice.  The AA tax charge works if you are slightly over, but you eventually end up in a position where the double tax is more punitive than losing the childcare element.


    Understood. What is that amount when it’s no longer viable.

  • Jeremy535897
    Jeremy535897 Posts: 10,663 Forumite
    10,000 Posts Fourth Anniversary Photogenic Name Dropper
    What is the "minus what I pay into my shares" reference to? 
  • I can’t deduct salary sacrifice pension? This goes against everything I’ve been told!

    I have a salary of 95K, a car allowance of 7K and a bonus of say 20K. That takes my income to 122K.

    However, I pay 8K say into my pension via my salary sacrifice pension contributions (ie it’s taken off my pay before I pay tax), and I sacrifice my bonus to my pension too.

    Hence based on all the advice I’ve been given my net adjusted income would be 94K.

    really confused by your comment about pension. I’ve been told by multiple sources you deduct this. 

    So I also add all my dividends payment and interest payments even if not taxed?
    Salary sacrifice pension contributions are actually employer contributions and you most definitely cannot deduct employer contributions.

    Salary is really irrelevant for tax purposes, it's your taxable pay which matters and, in my opinion, is the starting point for your ANI calculation.

    Nothing in the legislation Jeremy has posted suggests otherwise and there is nothing to say employer pension contributions can be deducted.

    I'm sure Jeremey will correct me if I'm wrong on those points.

    For the avoidance of doubt someone who has a "salary" of say £110,000 and sacrifices 10% into their pension (and no other complications pay wise) has taxable pay of £99,000 (the amount on their P60). 

    In my opinion that £99,000 is the starting point for an ANI calculation and the pension contributions cannot be deducted as they are employer contributions.

    And yes, you include all taxable income in your adjusted net income calculation.  Not sure why you would think otherwise?

    ISA interest is tax exempt and dividends in a S&S ISA are tax exempt.  But unwrapped interest and dividends are taxable income.  Just because they may be taxed at a 0% tax rate doesn't stop them from being taxable income.  
  • kinger101
    kinger101 Posts: 6,525 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    I can’t deduct salary sacrifice pension? This goes against everything I’ve been told!

    I have a salary of 95K, a car allowance of 7K and a bonus of say 20K. That takes my income to 122K.

    However, I pay 8K say into my pension via my salary sacrifice pension contributions (ie it’s taken off my pay before I pay tax), and I sacrifice my bonus to my pension too.

    Hence based on all the advice I’ve been given my net adjusted income would be 94K.

    really confused by your comment about pension. I’ve been told by multiple sources you deduct this. 

    So I also add all my dividends payment and interest payments even if not taxed?
    For the avoidance of doubt someone who has a "salary" of say £110,000 and sacrifices 10% into their pension (and no other complications pay wise) has taxable pay of £99,000 (the amount on their P60). 

    In my opinion that £99,000 is the starting point for an ANI calculation and the pension contributions cannot be deducted as they are employer contributions.

    100% correct.  Employer contributions cannot be deducted when calculating ANI.  They do however count toward the annual allowance.
    "Real knowledge is to know the extent of one's ignorance" - Confucius
  • Jeremy535897
    Jeremy535897 Posts: 10,663 Forumite
    10,000 Posts Fourth Anniversary Photogenic Name Dropper
    Salary sacrifice generates a lot of confusion because people start from different points along the process. If I have a salary of £120,000 and sacrifice salary of £20,000, this means my salary is now £100,000. It doesn't mean that I calculate my taxable income by taking my pre-sacrifice salary and deducting a pension contribution of £20,000. It means that I start the calculation with the £100,000 figure because I never got the salary in the first place. The £20,000 pension contribution made by my employer has no effect (or it would be counted twice). It does however count towards my annual allowance. Just to be absolutely clear: for adjusted net income purposes if I start with salary of £120,000 and personally make a gross contribution to my pension scheme of £20,000, my adjusted net income (ignoring all other elements) is £100,000. If I start with a salary of £120,000 and salary sacrifice £20,000 and my employer pays £20,000 into my pension scheme, my adjusted net income (ignoring all other elements) is £100,000. Salary sacrifice for pension is popular because it eliminates the national insurance contributions on the sacrificed amount.

    There is still the issue of what "minus what I pay into my shares" means.
  • kinger101
    kinger101 Posts: 6,525 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 25 March 2023 pm31 12:47PM
    kinger101 said:
    kinger101 said:
    I've been working through my own situation.  It's always made somewhat challenging as a chunk of my income is in restricted stock options, so I only know their value when they vest.  Stock and currency movements mean this is a bit of a rollercoaster.

    My son is currently two so we've been making use of the £2K government contribution, but the nursery hours won't really kick in until Q1 2024.  This year the focus had been dropping below the £100K to retain the £2K contribution.  Which left me with £13.5K AA from 2020/21 still available for 2023/24. I'd also used bonus sacrifice to kick what would have been a chunk of 2022/23 income into next years' pension contribution.

    Prior to the budget, I'd decided I was just going to have to accept losing 15 of the 30 hours, and the £2K.  

    After a bit of head scratching, I'd decided on the following with the new £60K allowance. 

    (a) use the remaining 2020/21 AA this year by making another SIPP contrubution.

    (b) drop my 2023/24 pension contribution down to 5% to get maximum 10% employer match.  Don't sal. sac bonus into the next year.  This will leave me with approx £20K AA to use the in 2024/25 tax year.   This is the key year, as it's the one where I have the most to lose from hitting the £100K as it would be a full year's nursery entitlement.   

    For the 2024/25 tax year, I will then need to sal. sac that bonus and potentially a chunk of March pay as well, but there's a fighting chance of avoiding super tax.  It's a silly dance to have to go through, but I don't see why I should jump off their cliff if I don't have to.

    Why would you not just pay the tax on the excess pension allowance that you breach. That’s better than paying the 60 percent tax trap you’d pay if it was in your income over 100K and you’d lose 2K of tax free child care?from Jeremy’s advice you can keep below 100K and benefit from the kids stuff whilst still going over the 60K pension allowance, they are kept separate apparently. 
    largely because with the numbers I'm taking about, I would end up putting about half my income into a pension and paying tax on some of it twice.  The AA tax charge works if you are slightly over, but you eventually end up in a position where the double tax is more punitive than losing the childcare element.


    Understood. What is that amount when it’s no longer viable.

    There are too many individual factors to give a general amount.

    (a) how many children you have 
    (b) their ages
    (c) how much the nursery charges without the free hours for your child(ren)
    (d) how much the nursery charges with
    (e) how much previous year's AA you have available
    (f) the timings of certain income (e.g. can bonus sacrifice be used)
    (g) your employer's willingness to let you vary SS pension contributions several times a year
    (h) the individuals attitude to balancing tax mitigation vs irregular cashflow.

    As a general guide though, once you start needing to pay AA excess charge at 45% then income tax again on the drawdown in retirement (notionally 15%, but could be higher), then the tail has stated wagging the dog.  The cashflow issues become a problem too as you're essentially paying tax income now on money you can't access until 57. 

    Manipulating your ANI down to <£100K for half of it then to be taken in income tax and AA excess charge isn't sensible if it only saves a few hundred quid.  And it would be a disaster if the Labour government reintroduced a LTA near the old £1073K figure.


    "Real knowledge is to know the extent of one's ignorance" - Confucius
  • What is the "minus what I pay into my shares" reference to? 
    I pay into a shared scheme which has tax relief so I assume I can deduct these when calculating net adjusted income. It is removed from my salary in same way as pension is 
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