How can I make 200K taxable income tax-efficient

jamesd

Grumpy_chap said:

... another regular, knowledgeable and respected contributor to these forums wrote in a recent post about how exceeding annual allowance pension contributions (so avoiding the 60% taper band) can work out beneficial in the long run.  If I understood correctly, it was hinged around the pension withdrawal needing to be within the basic rate band.

...
EDIT:  Here is the other thread I was referencing.  It seems as though I may have described the detail incorrectly / incompletely:
https://forums.moneysavingexpert.com/discussion/comment/80495333#Comment_80495333

Interesting and in essence you were right about there being possible benefit to exceeding the Annual Allowance. Key is this from the Pru page:

"Although the charge is to income tax, the amount is not income for tax purposes and therefore the member cannot set any allowances, losses or relief against it."

"In simple terms, the amount of the annual allowance excess is added to the top part of the person’s taxable income.  This is purely to find the tax rate to use for the charge.  It is not treated as income for calculations of other tax implications ie it will not lead to a high income child benefit tax charge or loss of the personal allowance etc."

What this means is that you can exceed the AA to recover child benefit or lost personal allowance and you'll be charged the equivalent of the income tax via the Annual Allowance Charge but that won't lose you the CB or PA.

This adds to the other and perhaps better known case where it's beneficial: salary sacrifice, where the charge recovers the income tax but not the NI.

Interesting couple of tricks that I've been missing.

Cus

If your wife works, fill up her sipp to the max. I'm not aware of any other tax at source options if you are PAYE. 

af1963

Nothing to do with tax, but with that level of earnings and enough 'spare' to be looking for extra things to do with it after maximum pension contributions - worth considering reduced hours and salary to allow more time for things you enjoy doing ?

IamWood

af1963 said:

Nothing to do with tax, but with that level of earnings and enough 'spare' to be looking for extra things to do with it after maximum pension contributions - worth considering reduced hours and salary to allow more time for things you enjoy doing ?

Thanks.

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