About to hit 40% bracket - or am I?

martinbuckley

Hi - looking for some advice from a tax expert or someone in a similar position:

I work full time and earn a salary for that, however I am also in receipt of a military pension that I also receive each month.  The combined total of them both is currently under the 40% bracket, but my next pay rise (due in August) will push me into 40% territory.  My questions are as follows:

1.  My spouse has given me 10% of her allowance as she earns less than £11k a year - does that mean I can earn an additional £1200-ish before I pay 40%?

If so, then problem solved!  If not, onto next question:

2.  I pay approx £100 a month into my workplace pension, and my understanding is that PAYE is calculated after that has been deducted.  Does that mean my gross salary is £1200 a year less for moving into 40% bracket?

3.  What are my options if the answer are "no" and "no"?  As I see it, I could ask for a reduction in hours (and pay), and as I'm on flex, could just accrue additional time which I'd be able to take as additional annual leave, or I could just suck it up and pay >50% of that money back to the Govt, along with losing part of my savings allowance.

4.  Do I only start paying the 40% when I've actually earned the pre-requisite amount (which will probably not be until next March)?

Thanks for any advice.

mark55man

Not an expert expert, but as an HRT for some while - I think

1/ you need to check if you are still entitled to this relief which I thought was only available if the higher earner was not in HRT territory (but the mitigations below - especially 2 would still allow this)

2/ Yes - complexities around whether you salary sacrifice but broadly money paid by the company into your pension is all gross ie it never enters the tax calculation, only the amount you earn on top.  This is the single easiest way to  reduce your HRT liability.  If your company allow flexibility great if not, you can make a donation (probably into a personal pension) that reduces your taxable pay.  Unlike gross payment by the company you will have to claim the HRT back from the taxman as the pension company only uplifts by basic rate

3/ Yes, but 2/ is the easier lever.  You can donate into you pension upto your taxable earnings (upi can't use you pension income in this calculation)/  Provided your employer pays you minimum wage you can bang all of it

4/ It deoends on payroll, but they will normally calculate the effect from pay rise to the end of the year and then even out your payments so you don't dip by having to pay all your 40% tax in March

Jeremy535897

You need to establish your adjusted net income. This is as follows, in your case, based on what you have told us:
Your salary per your P60, which appears to take your pension contributions into account, plus your military pension, plus your interest received, even though that might be taxed at 0%. The marriage allowance has no effect on adjusted net income, but you will become ineligible to receive it if you become a higher rate taxpayer. So if you stray £1 into the higher rate tax bracket, you lose all your marriage allowance and £500 of your personal savings allowance.