Taxable income over 100k next tax year

kjs31

I’m unexpectedly getting VR in May and have calculated that my taxable severance pay, earnings until my leaving date, and savings income will take me over 100k taxable income next year. Is this something to be particularly concerned about? I know my personal allowance will reduce but are there any other gotchas that I should be concerned about? I’ve always managed to keep below 100k in the past. I don’t claim child benefit. 

I am going to retire but am not going to draw anything from my pension in the next tax year apart from a 7k PA DB pension that will start paying on 1st January, so for 3 months. I have qualified for a full state pension when the time comes but have a few years to go. 

I will have maxed out my pension contributions including carry forward so can’t pay anything more into my pension. I’m currently paying via salary sacrifice and in May, severance sacrifice. Can I get additional tax relief on income above 100k? 

I’m very close to 100k this tax year already so don’t have much scope to do anything different this year. My ISA is maxed out too. 

Thanks in advance! 

Dazed_and_C0nfused

kjs31 said:

I’m unexpectedly getting VR in May and have calculated that my taxable severance pay, earnings until my leaving date, and savings income will take me over 100k taxable income next year. Is this something to be particularly concerned about? I know my personal allowance will reduce but are there any other gotchas that I should be concerned about? I’ve always managed to keep below 100k in the past. I don’t claim child benefit. 

I am going to retire but am not going to draw anything from my pension in the next tax year apart from a 7k PA DB pension that will start paying on 1st January, so for 3 months. I have qualified for a full state pension when the time comes but have a few years to go. 

I will have maxed out my pension contributions including carry forward so can’t pay anything more into my pension. I’m currently paying via salary sacrifice and in May, severance sacrifice. Can I get additional tax relief on income above 100k? 

I’m very close to 100k this tax year already so don’t have much scope to do anything different this year. My ISA is maxed out too. 

Thanks in advance! 

Do you mean £60k will already be going into your pension in 2024-25 before the taxable element of the redundancy is factored in 🤔

kjs31

Dazed_and_C0nfused said:

Do you mean £60k will already be going into your pension in 2024-25 before the taxable element of the redundancy is factored in 🤔

Yes the 60k for tax year 24/25 is going into my pension as salary / redundancy sacrifice plus remaining carry forward from the previous 3 years which takes it to just under 100k. I then get 30k tax free and the remainder will be part of my taxable income. 

Dazed_and_C0nfused

The only way you can retain your full Personal Allowance is keep your adjusted net income less than £100,002 so with £100k+ taxable income after all possible pension contributions have been made you would need to consider Gift Aid donations.

Or reducing your income by deferring your DB pension until the next tax year.  But that isn't something to do lightly as you may not be entitled to the pension you don't take, it can vary from scheme to scheme.

elkiedee

When you say your ISA is maxed out, do you mean that you already have plans for how to use next financial year's ISA allowance?

kjs31

Dazed_and_C0nfused said:

The only way you can retain your full Personal Allowance is keep your adjusted net income less than £100,002 so with £100k+ taxable income after all possible pension contributions have been made you would need to consider Gift Aid donations.

Or reducing your income by deferring your DB pension until the next tax year.  But that isn't something to do lightly as you may not be entitled to the pension you don't take, it can vary from scheme to scheme.

Is there a massive issue with not retaining the full personal allowance (apart from the extra tax implications)? I guess I’ll lose the £500 personal savings allowance. 

I suppose I could potentially move some savings into 12 month fixed rate bonds in April to trigger the interest in the following tax year. I also have a few easy access accounts paying annual interest next year that I could close this month and get the interest paid up. I am very close to the 100k limit this year though so I’ll have to ensure that I don’t end up with the issue this year too. 

I can defer my pension but I am not entitled to the pension I don’t take unfortunately. 

kjs31

elkiedee said:

When you say your ISA is maxed out, do you mean that you already have plans for how to use next financial year's ISA allowance?

Yes sorry I have already earmarked the 20k for some shares that I will need to move when I leave the company. 

Dazed_and_C0nfused

kjs31 said:

Dazed_and_C0nfused said:

The only way you can retain your full Personal Allowance is keep your adjusted net income less than £100,002 so with £100k+ taxable income after all possible pension contributions have been made you would need to consider Gift Aid donations.

Or reducing your income by deferring your DB pension until the next tax year.  But that isn't something to do lightly as you may not be entitled to the pension you don't take, it can vary from scheme to scheme.

Is there a massive issue with not retaining the full personal allowance (apart from the extra tax implications)? I guess I’ll lose the £500 personal savings allowance. 

I suppose I could potentially move some savings into 12 month fixed rate bonds in April to trigger the interest in the following tax year. I also have a few easy access accounts paying annual interest next year that I could close this month and get the interest paid up. I am very close to the 100k limit this year though so I’ll have to ensure that I don’t end up with the issue this year too. 

I can defer my pension but I am not entitled to the pension I don’t take unfortunately. 

No, the only I can think of is the tax implications.  And tax free childcare can be impacted if that's relevant.

Sometimes you just have to pay what's due and remember it's a nice problem to have!

TheAble

Think you still get the £500 savings allowance unless a 45% taxpayer?

Jeremy535897

You can deliberately overpay into your pension scheme and pay the annual allowance charge at 40% rather than the effective 60% rate. There are disadvantages though, in that you still have to pay tax to get the money back out of the pension, and if a LTA is reintroduced it could cause other problems.
https://www.mandg.com/wealth/adviser-services/tech-matters/pensions/annual-allowance/annual-allowance-explained#annual-allowance-tax-charge

kjs31

TheAble said:

Think you still get the £500 savings allowance unless a 45% taxpayer?

Ah yes thanks! I was confusing the loss of the personal allowance at 100k with the 45% rate! I should be good to stay under 45% so all good for the £500.