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Keeping net adjusted income below £100K

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  • I think there’s some confusion. I wasn’t for once suggesting I remove my companies pension contribution or remove my contributions twice!

    My salary pre paying pension or shares is say 95. I pay 5K into a pension via salary sacrifice and I do 1K by exactly the same mechanism to a shares scheme. 

    My taxable pay is therefore 89K.

    Assuming no dividends or savings my net adjusted income is 89K.

    I do actually have say 300 quid of interest payments and 600 quid of dividend payments.

    that therefore would take adjusted net income to 89,900.

    pretty sure this is correct now. My terminology maybe hasn’t been right but my I’m 100 percent certain I remove my pension in the calculation from my gross salary to give my taxable pay. I don’t then obviously remove it again. Only once!

    My main concern was breaching the 60K pension limit and paying tax on my pension and that pushing my net adjusted income back over 100K but Jeremy has made it clear that the two don’t impact each other and I should be absolutely fine.

    thank you 
  • Jeremy535897
    Jeremy535897 Posts: 10,663 Forumite
    10,000 Posts Fourth Anniversary Photogenic Name Dropper
    Are you buying partnership shares under a SIP (share incentive plan)? If so, my understanding is that these are treated for tax purposes as reducing pre-tax salary (equivalent to salary sacrifice), so are not included in adjusted net income.
  • Are you buying partnership shares under a SIP (share incentive plan)? If so, my understanding is that these are treated for tax purposes as reducing pre-tax salary (equivalent to salary sacrifice), so are not included in adjusted net income.
    that's right so i remove in exactly the same way as my pension to calculate my net adjusted income? It does not count towards taxable pay and therefore i can remove the amount when calculating net adjusted income - reducing my net adjusted income so to speak.

    I think i am clear now and the thing i wanted to be sure of is i can keep net adjusted income below £100K to get benefits whilst breaching the pension annual limit and paying tax just on the pension amount about the 60K. And i think you've made that clear.

    Therefore I will now make the election to salary sacrifice my bonus to my pension so i don't have to count it in my net adjusted income calculation.

    Thank you!  
  • Jeremy535897
    Jeremy535897 Posts: 10,663 Forumite
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    Don't forget the £60,000 limit is next tax year, not the current one.
  • Don't forget the £60,000 limit is next tax year, not the current one.
    Got it! Thank you Jeremy. You've been a huge help here. 

    Still going back and forth with financial advisor and he just doesn't get it. To confirm:

    * I can keep my net adjusted income below 100K to allow me to access child care benefits by contributing bonus/more salary to my pension
    * In doing so I may breach the annual pension allowance but that is fine as i just pay tax on the amount i breach separately and it doesn't impact net adjusted income and access to childcare.

    :-)
  • Jeremy535897
    Jeremy535897 Posts: 10,663 Forumite
    10,000 Posts Fourth Anniversary Photogenic Name Dropper
    That is certainly my interpretation of the legislation. The pension contribution reduces adjusted net income, either because your salary is smaller in the first place (salary sacrifice) or because you personally make contributions to your pension scheme. The government could have chosen to take away this reduction, but instead they chose to collect, by means of a specific annual allowance charge, an amount of tax equal to the benefit they perceived the taxpayer received from making the extra contributions.
  • Don't forget the £60,000 limit is next tax year, not the current one.
    Got it! Thank you Jeremy. You've been a huge help here. 

    Still going back and forth with financial advisor and he just doesn't get it. To confirm:

    * I can keep my net adjusted income below 100K to allow me to access child care benefits by contributing bonus/more salary to my pension
    * In doing so I may breach the annual pension allowance but that is fine as i just pay tax on the amount i breach separately and it doesn't impact net adjusted income and access to childcare.

    :-)
    Is there some kind of issue with the adviser being aware that their client (you) is knowingly contributing to a pension in excess of his annual allowance? Code of conduct issue? Breach of terms and conditions of engagement?
  • r6mile
    r6mile Posts: 258 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    Can I just ask, have you calculated the ‘value’ you are getting from the childcare benefits - TFC is worth up to £2k a year, value of 30h over 15h is harder to quantify but if I look at the prices for our nursery that is worth just over 3k per annum. Unless you have a large number of children in childcare, it just strikes that making such large pension contributions - even in excess of the annual allowance and getting charged for that - just to retain those benefits seems a bit overkill? 

    Unless your lifestyle won’t be significantly impacted by such large salary sacrifice - and of course it is all going into the pension though you won’t see that for a long time. But I must admit it all seems a bit excessive to me!
  • That is certainly my interpretation of the legislation. The pension contribution reduces adjusted net income, either because your salary is smaller in the first place (salary sacrifice) or because you personally make contributions to your pension scheme. The government could have chosen to take away this reduction, but instead they chose to collect, by means of a specific annual allowance charge, an amount of tax equal to the benefit they perceived the taxpayer received from making the extra contributions.
    thank you you've made this clear :-)
  • mortgageadviceda
    mortgageadviceda Posts: 27 Forumite
    Fourth Anniversary 10 Posts
    edited 22 January 2024 pm31 2:51PM
    Don't forget the £60,000 limit is next tax year, not the current one.
    Got it! Thank you Jeremy. You've been a huge help here. 

    Still going back and forth with financial advisor and he just doesn't get it. To confirm:

    * I can keep my net adjusted income below 100K to allow me to access child care benefits by contributing bonus/more salary to my pension
    * In doing so I may breach the annual pension allowance but that is fine as i just pay tax on the amount i breach separately and it doesn't impact net adjusted income and access to childcare.

    :-)
    Is there some kind of issue with the adviser being aware that their client (you) is knowingly contributing to a pension in excess of his annual allowance? Code of conduct issue? Breach of terms and conditions of engagement?
    No, they just don't get it! I don't think they know the legislation like Jeremy does!
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