Tax taper

Hi, in 2024-2025 my income will be £103,000 (salary plus pension income). i make £3000 gift aid contributions each year. I  am fortunate to be in this position however tax in Scotland is getting quite steep. I will attract the new higher rate of 45% on income above £75000 however suspect I may be subject to 67.5% above £100,000. 
Is my taxable income the full 103k or is it 100k (once gift aid contributions deducted) and thus keeping me just below the threshold?

I am painfully aware that future year wage and pension increases will take me into that 67.5 % bracket so will need to consider my options then (reduce hours or pay into a personal pension so may seek advice on pensions board on that one ( I am being paid a DB pension from previous job, growing a second DB pension from current job but think I could pay into a DC ( being mindful of recycling rules ) 
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  • masonic
    masonic Posts: 22,907
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    The charities will have already claimed the basic rate tax if you used gift-aid, but you can claim back the higher rates of tax paid on the gift through a tax return.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,809
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    edited 27 December 2023 at 10:39PM
    Is my taxable income the full 103k or is it 100k (once gift aid contributions deducted) and thus keeping me just below the threshold?

    Gift Aid payments don't have any impact on your taxable income so it will remain £103k.

    But tapered Personal Allowance isn't based on taxable income, it's adjusted net income which is used for that and a gross contribution of £3k would reduce your adjusted net income by £3k.

    Don't forget that all taxable income is included when calculating adjusted net income so if you had say interest of £500 and dividends of £500 your adjusted net income would be increased by £1,000 despite the interest and dividend income being taxed at 0%.

    NB.  Contributions to a personal pension don't reduce your taxable income either but they do reduce adjusted net income.
  • Is my taxable income the full 103k or is it 100k (once gift aid contributions deducted) and thus keeping me just below the threshold?

    Gift Aid payments don't have any impact on your taxable income so it will remain £103k.

    But tapered Personal Allowance isn't based on taxable income, it's adjusted net income which is used for that and a gross contribution of £3k would reduce your adjusted net income by £3k.

    Don't forget that all taxable income is included when calculating adjusted net income so if you had say interest of £500 and dividends of £500 your adjusted net income would be increased by £1,000 despite the interest and dividend income being taxed at 0%.

    NB.  Contributions to a personal pension don't reduce your taxable income either but they do reduce adjusted net income.
    Thanks D&C, that reassures me that my adjusted net income after gift aid contributions will be below the tax taper threshold (just), however I hadn’t considered savings interest would be part of overall income (I should have). That’s not been a problem up until now since most of my savings is in ISAs but I am in the process of receiving a largish TFLS at the moment which will sit in easy access accounts to fund a new property as soon as the right one comes along).
    I am going to take a bit of s hit due to that it seems. 
  • Does the £103k include your pension contributions from your current job? If so I think your adjusted net income will be lower
  • Does the £103k include your pension contributions from your current job? If so I think your adjusted net income will be lower
    I pay into Civil Service Alpha but not via salary sacrifice - the 103k is before my 7.35% contribution rate. Does that change my adjusted net income (and if so keep me out of the > 100k tax taper ?
  • player1_2 said:
    Does the £103k include your pension contributions from your current job? If so I think your adjusted net income will be lower
    I pay into Civil Service Alpha but not via salary sacrifice - the 103k is before my 7.35% contribution rate. Does that change my adjusted net income (and if so keep me out of the > 100k tax taper ?
    Yes - civil service pension contributions are paid before tax, so you only pay tax on (salary minus pension).

    See here for more detail about how to calculate adjusted net income: https://www.gov.uk/guidance/adjusted-net-income
  • BoGoF
    BoGoF Posts: 6,792
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    Just to advise - your Civil Service Pension payments are not made via salafy sacrifice.
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,809
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    edited 28 December 2023 at 11:54PM
    player1_2 said:
    Does the £103k include your pension contributions from your current job? If so I think your adjusted net income will be lower
    I pay into Civil Service Alpha but not via salary sacrifice - the 103k is before my 7.35% contribution rate. Does that change my adjusted net income (and if so keep me out of the > 100k tax taper ?
    You don't deduct net pay contributions when calculating your adjusted net income.

    But that's because they are already deducted to arrive at your taxable pay, the key figure which is reported on your P60.

    So if you deducted them they would be double counted. 

    If your civil service salary was say £80k and paid 7.35% then your P60 would show taxable income as £74,120 and HMRC are usually only interested in taxable pay, not salary.
  • Thanks all. So if I understand this correctly my taxable income is full salary + pension income + savings interest above £500 but my adjusted net income would not include pension contributions or gift aid donations (claiming back the higher rate tax portion). Is that correct ?
    if so I will fall below the £100k threshold. However I need to keep an eye on salary increases and pension uplifts over the next three and a bit years ( I will retire no later than then at SPA ) 
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 12,809
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    edited 30 December 2023 at 10:15AM
    player1_2 said:
    Thanks all. So if I understand this correctly my taxable income is full salary + pension income + savings interest above £500 but my adjusted net income would not include pension contributions or gift aid donations (claiming back the higher rate tax portion). Is that correct ?
    if so I will fall below the £100k threshold. However I need to keep an eye on salary increases and pension uplifts over the next three and a bit years ( I will retire no later than then at SPA ) 
    No, you've misunderstood somewhere along the line.  Or explained it in a very odd way!

    Your adjusted net income is all of your taxable income, including any that is taxed at 0%.

    And RAS pension contributions and Gift Aid donations are also included in the calculation of adjusted net income.  Net pay and salary sacrifice pension contributions cannot be deducted though.

    So if it was made up of the following elements your adjusted net income would be £100,500.  Giving you a reduced Personal Allowance of £12,320.

    Taxable pay £103,000
    Company benefits £1,500
    Untaxed interest £500
    Less
    RAS pension contributions £4,200 (gross)
    Gift Aid £300 (gross)
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