40% Tax Threshold

I earn about 60k and my wife earns 15k.

This may be wishful thinking, but is there a legitimate way of reducing the proportion of my pay that’s taxed at 40% given that my wife is well below the 40k limit for 40% herself? I guess in the same way in understand some couples can share the £12,500 tax free threshold.

If not, is there an easy way I can minimise my 40%? Additional pension contributions seems the obvious smart move? Are there any other east ones? 

Comments

  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 13,395 Forumite
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    Whilst you remain liable to higher rate tax you cannot receive Marriage Allowance.  Not that it seems suitable anyway if your wife's taxable earnings are £15k.

    Pension contributions and Gift Aid are two common ways to reduce higher rate tax liability.  With some employers you can buy buy extra leave, reducing your earnings.  Or go part time.

    Pension contributions are very tax efficient when you are in the 40% band and have HICBC to pay.
  • So additional pensions contributions also help lower me to the 50k threshold for HICBC? 

    A third of my salary is overtime and my pension is currently passed on basic pay, so approx £3500 from me, £3500 from my employer per annual. How much can I increase that by before I end up paying tax on the pensions contributions?
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 13,395 Forumite
    First Anniversary First Post Name Dropper
    So additional pensions contributions also help lower me to the 50k threshold for HICBC? 

    A third of my salary is overtime and my pension is currently passed on basic pay, so approx £3500 from me, £3500 from my employer per annual. How much can I increase that by before I end up paying tax on the pensions contributions?
    Yes.

    Employer contributions aren't relevant, it's just your own contributions.

    The annual allowance for pension contributions is £60,000.  This limit includes employer contributions and basic rate pension tax relief if you contribute using the RAS method).

    In limited circumstances you can contribute more by using unused annual from previous years but that is unlikely to be relevant here.
  • Albermarle
    Albermarle Posts: 21,993 Forumite
    First Anniversary First Post Name Dropper
    I earn about 60k and my wife earns 15k.

    This may be wishful thinking, but is there a legitimate way of reducing the proportion of my pay that’s taxed at 40% given that my wife is well below the 40k limit for 40% herself? I guess in the same way in understand some couples can share the £12,500 tax free threshold.

    If not, is there an easy way I can minimise my 40%? Additional pension contributions seems the obvious smart move? Are there any other east ones? 

    More pension contributions will reduce the amount of 40% tax you have to pay.
    However you need to know how your pension contributions are taken from your salary.

    Salary sacrifice- Your salary is reduced and the employer pays an increased amount into your pension
    Net Pay - contributions are take out before tax is applied
    RAS - contributions are taken from your taxed pay.

    With the first two, you have not paid tax on the contributions so no further tax relief to claim
    With the third one, the pension provider adds basic rate relief and you have to claim the higher rate relief.
  • Worpy1
    Worpy1 Posts: 6 Forumite
    First Anniversary First Post
    I earn about 60k and my wife earns 15k.

    This may be wishful thinking, but is there a legitimate way of reducing the proportion of my pay that’s taxed at 40% given that my wife is well below the 40k limit for 40% herself? I guess in the same way in understand some couples can share the £12,500 tax free threshold.

    If not, is there an easy way I can minimise my 40%? Additional pension contributions seems the obvious smart move? Are there any other east ones? 

    More pension contributions will reduce the amount of 40% tax you have to pay.
    However you need to know how your pension contributions are taken from your salary.

    Salary sacrifice- Your salary is reduced and the employer pays an increased amount into your pension
    Net Pay - contributions are take out before tax is applied
    RAS - contributions are taken from your taxed pay.

    With the first two, you have not paid tax on the contributions so no further tax relief to claim
    With the third one, the pension provider adds basic rate relief and you have to claim the higher rate relief.
    Could anyone advise on difference between option 1 & 2 ? I understand how salary sacrifice works but wasn't sure on option 2 sounds like the same as option 1 ? I only ask as starting a new job with a salary of £115k so want to make sure my pension contributions help with the increase in income tax. 


  • Net pay is you paying the contribution and this reduces the amount of your taxable income.  No impact on National Insurance.

    Salary sacrifice is you agreeing to a lower salary in return for additional employer contributions.  So you don't get any pension tax relief but avoid paying tax and NI on the amount sacrifice.  For basic rate payers it usually avoids 20% + 12% and for higher rate payers 40% + 2%.

    And some employers add their NI saving too.  
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