net contribution for 60k pension contributions

gibbo888

I have an inheritance which i am thinking of putting into my pension.

i was going to do this through my employers scheme which is a salary sacrifice scheme. and live off the inheritance to  get tax relief. save me bothering with claiming the tax relief back

Could some one do a rough calculation on how much i would actually being earning net per month based on the following.

Income £5400 gross per month
Company contributions are £600 mine are £400

if i want to invest the maximum £60000 per year i need to add a further £4000pm

so £4400 per month in total.

how much is it actually going give me net pay?

Cheers

MX5huggy

It’s a good plan but. …You need to be clearer with what is gross salary and salary sacrifice (SS) contributions.
With SS you don’t make any contributions. Your salary after SS is your gross salary, 

If you want to SS £60k you have to SS £5k per month. Do you earn enough so that you are left with National Minimum Wage as your gross wage? That’s £10.42 per hour. Or just under £21700 on 40 hour week. 

Bimbly

Your salary is £64,800 (5400 x 12) per year? 

You currently salary sacrifice £4,800 (400 x 12) into your pension.

You want to add an extra £60,000 into your pension via salary sacrifice.

You can only sacrifice down to the limit of the minimum wage. Let's take MX5huggy's calculation of this being £21,700. 

That means you can SS £43,100 (64,800 - 21,700) which is £3,591 per month.

This is an increase of £3,191 per month. At this rate, it will take just under 19 months to achieve what you want (3,191 x 19 = 60,629).

I think those calculations are correct, with a little rounding. Still worth doing.

Bimbly

gibbo888 said:

how much is it actually going give me net pay?

I missed this bit.

A salary of £21,700 gives you £1,564.86 per month take home after tax, assuming a regular tax code and no other deductions. https://www.thesalarycalculator.co.uk/salary.php

tigerspill

Bimbly said:

You can only sacrifice down to the limit of the minimum wage. Let's take MX5huggy's calculation of this being £21,700. 

But you can put the rest seperately into a SIPP and still make use of the income tax relief.

Pat38493

Also with some employer schemes they allow you to opt out of salary sacrifice and have your pension contributions from your gross salary after NI - you will lose the NI savings but I believe that you are no longer affected by the minimum wage limitation.

gibbo888

MX5huggy said:

It’s a good plan but. …You need to be clearer with what is gross salary and salary sacrifice (SS) contributions.
With SS you don’t make any contributions. Your salary after SS is your gross salary, 

If you want to SS £60k you have to SS £5k per month. Do you earn enough so that you are left with National Minimum Wage as your gross wage? That’s £10.42 per hour. Or just under £21700 on 40 hour week. 

Hi 
Thanks for that that is one of the things that I am stuck on. I am finding conflicting advice wrt this. Some say down to minimim wage some say you to your total earnings max 60k. 
Thank you 

gibbo888

Bimbly said:

gibbo888 said:

how much is it actually going give me net pay?

I missed this bit.

A salary of £21,700 gives you £1,564.86 per month take home after tax, assuming a regular tax code and no other deductions. https://www.thesalarycalculator.co.uk/salary.php

Do I getfull 40% tax relief on everything I add into my pot then? 
That's what I was struggling with. I assumed (wronglly) that once my contributions took me below 50k I would only attract 20% relief. 

Dazed_and_C0nfused

gibbo888 said:

Bimbly said:

gibbo888 said:

how much is it actually going give me net pay?

I missed this bit.

A salary of £21,700 gives you £1,564.86 per month take home after tax, assuming a regular tax code and no other deductions. https://www.thesalarycalculator.co.uk/salary.php

Do I getfull 40% tax relief on everything I add into my pot then? 
That's what I was struggling with. I assumed (wronglly) that once my contributions took me below 50k I would only attract 20% relief. 

No, with salary sacrifice you don't get any pension tax relief as they are employer contributions.  You avoid playing tax and NI on the amount sacrificed.  So say you earned £70k and sacrificed £10k you would have avoided paying 40% tax and 2% NI.

But as they are employer contributions the £10k that gets added to your pension fund remains £10k, it doesn't get the £2.5k basic rate tax relief.

If you earned £40k and sacrificed £10k you would avoid paying 20% tax and 12% NI.

And earning £55k and sacrificing "10k would avoid a mix of 20% and 40% tax and 12% and 2% NI.

If you plan on making personal contributions under the RAS method you will get 25% added to your contribution (20% of the gross).  Any additional tax relief would depend on your total taxable income for the year (salary is irrelevant).

gibbo888

Dazed_and_C0nfused said:

gibbo888 said:

Bimbly said:

gibbo888 said:

how much is it actually going give me net pay?

I missed this bit.

A salary of £21,700 gives you £1,564.86 per month take home after tax, assuming a regular tax code and no other deductions. https://www.thesalarycalculator.co.uk/salary.php

Do I getfull 40% tax relief on everything I add into my pot then? 
That's what I was struggling with. I assumed (wronglly) that once my contributions took me below 50k I would only attract 20% relief. 

No, with salary sacrifice you don't get any pension tax relief as they are employer contributions.  You avoid playing tax and NI on the amount sacrificed.  So say you earned £70k and sacrificed £10k you would have avoided paying 40% tax and 2% NI.

But as they are employer contributions the £10k that gets added to your pension fund remains £10k, it doesn't get the £2.5k basic rate tax relief.

If you earned £40k and sacrificed £10k you would avoid paying 20% tax and 12% NI.

And earning £55k and sacrificing "10k would avoid a mix of 20% and 40% tax and 12% and 2% NI.

If you plan on making personal contributions under the RAS method you will get 25% added to your contribution (20% of the gross).  Any additional tax relief would depend on your total taxable income for the year (salary is irrelevant).

That makes alot more sense to me. 
I'm just trying to find out the most tax efficient way of using the inheritance to my advantage rather than just throwing it in ISAs,premium bonds, bank accounts etc.

Dazed_and_C0nfused

gibbo888 said:

Dazed_and_C0nfused said:

gibbo888 said:

Bimbly said:

gibbo888 said:

how much is it actually going give me net pay?

I missed this bit.

A salary of £21,700 gives you £1,564.86 per month take home after tax, assuming a regular tax code and no other deductions. https://www.thesalarycalculator.co.uk/salary.php

Do I getfull 40% tax relief on everything I add into my pot then? 
That's what I was struggling with. I assumed (wronglly) that once my contributions took me below 50k I would only attract 20% relief. 

No, with salary sacrifice you don't get any pension tax relief as they are employer contributions.  You avoid playing tax and NI on the amount sacrificed.  So say you earned £70k and sacrificed £10k you would have avoided paying 40% tax and 2% NI.

But as they are employer contributions the £10k that gets added to your pension fund remains £10k, it doesn't get the £2.5k basic rate tax relief.

If you earned £40k and sacrificed £10k you would avoid paying 20% tax and 12% NI.

And earning £55k and sacrificing "10k would avoid a mix of 20% and 40% tax and 12% and 2% NI.

If you plan on making personal contributions under the RAS method you will get 25% added to your contribution (20% of the gross).  Any additional tax relief would depend on your total taxable income for the year (salary is irrelevant).

That makes alot more sense to me. 
I'm just trying to find out the most tax efficient way of using the inheritance to my advantage rather than just throwing it in ISAs,premium bonds, bank accounts etc.

In most cases salary sacrifice is the most tax efficient way of getting money into your pension as you get a tax and NI saving.  Some employers even add their NI saving to your pension fund.

RAS is better for very low earners though.