Salary sacrifice pension

lee78

I have just started to earn just over the 40% tax bracket , am I right in thinking if I was to do a salary sacrifice to my pension of say £2000 or £3000 would this keep me in the 20% bracket so that they don’t treat my interest in saving at 40%

Dazed_and_C0nfused

lee78 said:

I have just started to earn just over the 40% tax bracket , am I right in thinking if I was to do a salary sacrifice to my pension of say £2000 or £3000 would this keep me in the 20% bracket so that they don’t treat my interest in saving at 40%

Salary sacrifice is where you agree to a lower salary in return for additional employer pension contributions.

As a result your taxable (and NIC'able) income is less than it would otherwise be so it can mean you move from one tax band to another.

As ever though with tax the devil is in the detail.

Someone "earning" just over the 40% threshold often won't be a higher rate payer in the first place due to existing pension contributions.

Marcon

lee78 said:

I have just started to earn just over the 40% tax bracket , am I right in thinking if I was to do a salary sacrifice to my pension of say £2000 or £3000 would this keep me in the 20% bracket so that they don’t treat my interest in saving at 40%

You'd need to do a calculation (not a complex one - just simple arithmetic!) to see how much you'd need to sacrifice to keep your taxable earnings, including savings interest, below the threshold at which 40% tax becomes payable on anything over that threshold (£50,271).

Peterrr

lee78 said:

I have just started to earn just over the 40% tax bracket , am I right in thinking if I was to do a salary sacrifice to my pension of say £2000 or £3000 would this keep me in the 20% bracket so that they don’t treat my interest in saving at 40%

Probably yes. I do exactly that by sacrificing just enough to keep my earnings under the higher rate tax threshold

Albermarle

Peterrr said:

lee78 said:

I have just started to earn just over the 40% tax bracket , am I right in thinking if I was to do a salary sacrifice to my pension of say £2000 or £3000 would this keep me in the 20% bracket so that they don’t treat my interest in saving at 40%

Probably yes. I do exactly that by sacrificing just enough to keep my earnings under the higher rate tax threshold

You should also look at it long term from another angle.
That is - Am I adding enough to my pension to give me the kind of retirement income I want, or the ability to retire early ?

lee78

Thanks for all the advice and comments 
another question I have is could I keep my normal pension contributions and then in march before end of the tax year ( because of bonuses) salary sacrifice the right amount to bring me under the 40% 

NoMore

That would be a question for your employer. Some allow you to change your salary sacrifice anytime you want, others have restrictions on when and how often you can change it. 

QrizB

lee78 said:

another question I have is could I keep my normal pension contributions and then in march before end of the tax year ( because of bonuses) salary sacrifice the right amount to bring me under the 40%

That would work, if your employer lets you change your salsac quickly. I do something slightly different.

In my case, most of my pension contributions are made via salary sacrifice. Because there's a delay in adjusting this (I can change it this month, to take effect on next month's payslip) I can't guarantee to end the tax year under the 40% tax band.

So I have a Vanguard pension where I can make a RAS contribution after receiving my March payslip but before the end of the tax year. Some years I don't need it at all, others I might top it up by a few hundred.

Prism

Also, the different between salary sacrifice and a regular SIPP payment after tax is very small for amounts in the higher tax rate bracket. Just a 2% NI difference. So I don't need to make multiple adjustments to salary sacrifice payments I just make a single SIPP payment in March each year to keep in the lower bracket

dharm999

lee78 said:

Thanks for all the advice and comments 
another question I have is could I keep my normal pension contributions and then in march before end of the tax year ( because of bonuses) salary sacrifice the right amount to bring me under the 40% 

Are you in England or Scotland, as if in Scotland it’s not £50271 to get relief above 20%, given the different income tax rates

lee78

im in England
so doing a salary sacrifice does employers still contribute 3% as well 
also my employer is flexible so I suppose when I get a bonus I can just change the terms as long as we both agree