Tax question

My employer allows the payment of my bonus (c£20k) into the company's pension scheme.

I don't need the bonus and I am a 40% taxpayer so are there any benefits from doing this?
Thank you

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  • eskbanker
    eskbanker Posts: 29,811
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    If it's paid directly to you then it would be taxed at 40%, and there'd also be an NI liability.

    If it's paid into the pension then 25% of it would ultimately be available tax-free, so even if you're a higher rate taxpayer when withdrawing it, you'd benefit from that tax-free component, and if you were then at basic rate the advantage would be that much more pronounced.
  • [Deleted User]
    [Deleted User] Posts: 0
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    edited 30 November 2023 at 1:18PM
    corky2 said:
    My employer allows the payment of my bonus (c£20k) into the company's pension scheme.

    I don't need the bonus and I am a 40% taxpayer so are there any benefits from doing this?
    Thank you
    What is your taxable salary excluding the bonus? 

    Under £80k
    £80k to £100k
    £100k to £125140
    ??
  • corky2
    corky2 Posts: 88
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    Hi Purdy - my taxable salary excluding bonus is £95k

    Eskbanker - thank you. I am not sure why I was thinking it would be more tax efficient being paid into a pension, perhaps I was thinking of redundancy payments. Thank you for the confirmation.
  • eskbanker
    eskbanker Posts: 29,811
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    corky2 said:
    Eskbanker - thank you. I am not sure why I was thinking it would be more tax efficient being paid into a pension, perhaps I was thinking of redundancy payments. Thank you for the confirmation.
    That seems an odd way of phrasing a response to what I said, as it appears to imply the opposite, so, just in case it wasn't clear, it is very much more tax efficient to pay into a pension here....
  • corky2 said:
    Hi Purdy - my taxable salary excluding bonus is £95k

    Eskbanker - thank you. I am not sure why I was thinking it would be more tax efficient being paid into a pension, perhaps I was thinking of redundancy payments. Thank you for the confirmation.
    So, on the £20000 bonus you would end up with £8600 net. 

    (£5000 would be taxed at 40% plus 2% NI with £15000 at an effective rate of 60% plus 2% NI)

    £20000 would go into your pension at a cost to you of £8600 which, you have said, you don’t need. 

    I know what I would do!


  • corky2
    corky2 Posts: 88
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    edited 22 January at 2:51PM
    corky2 said:
    Hi Purdy - my taxable salary excluding bonus is £95k

    Eskbanker - thank you. I am not sure why I was thinking it would be more tax efficient being paid into a pension, perhaps I was thinking of redundancy payments. Thank you for the confirmation.
    So, on the £20000 bonus you would end up with £8600 net. 

    (£5000 would be taxed at 40% plus 2% NI with £15000 at an effective rate of 60% plus 2% NI)

    £20000 would go into your pension at a cost to you of £8600 which, you have said, you don’t need. 

    I know what I would do!


    and I know what I will do now! Thank you Purdy,. I have elected to pay my bonus into my pension.
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