Job bonus to push me into higher rate tax band

modelreject

Hi. I will be getting a bonus soon from my employer. I have savings interest that gets me to just below the higher rate tax threshold of £50270. Bonus will push me into higher rate tax band.

What is the best way to reduce/avoid tax on this. I was thinking just get the company to directly pay this into my work pension scheme? Not sure of other options but I really don't mind it going into pension and that's the only solution I can think of.

Many thanks

Dazed_and_C0nfused

If you're feeling charitable then Gift Aid donations would increase your basic rate band.

But pension contributions are likely to be your best bet.

Flugelhorn

you can either have the money now and pay tax on it or not have the money ever and give it to charity or lock the money away and pay tax on it later when you retire 

lisyloo

Flugelhorn said:

you can either have the money now and pay tax on it or not have the money ever and give it to charity or lock the money away and pay tax on it later when you retire 

True, but tax on it later might be 0% income tax and 0% national insurance.
More likely 20% income tax and 0% national insurance rather than 40% income tax and 2% national insurance.

modelreject

Thanks. Yes, was thinking less tax later with interest being earned too. 

Grumpy_chap

modelreject said:

Hi. I will be getting a bonus soon from my employer. I have savings interest that gets me to just below the higher rate tax threshold of £50270. Bonus will push me into higher rate tax band.

What is the best way to reduce/avoid tax on this. I was thinking just get the company to directly pay this into my work pension scheme? Not sure of other options but I really don't mind it going into pension and that's the only solution I can think of.

Many thanks

How much into the higher rate band does the bonus take you?
Does it still take you into higher rate band when considering ANI (adjusted net income)?  For most employed people, there will be employee pension contributions and that alone may bring you back below the higher rate band.

Newbie_John

How much interest on your savings do you expect this financial year?
Bad case scenario your salary is £40269, £1000 would be earned in interests (max tax free on lower rate), bonus is £10000 then cashing it all now would cost you £4200, but you get £6800. So pension top up here sounds best.

If it's the other way round, £10000 interests and £1000 bonus then you could move your savings somewhere tax free like ISA, Premium Bonds lowering your taxable income.

modelreject

@Grumpy_chap

I will have to check. Bit confusing for me TBH.

So higher interest kicks in depending on Total Gross Income? Apparently Net Income is your income after all deductions (PAYE, National Insurance, pension contributions) have been taken out so pension contribution will not make a difference?

Will still be in higher rate tax band but taxed on ever so slightly less income.

Yorkie1

It's your taxable income which is relevant. This is your salary, less any NI and pension contributions. Plus savings and other income such as dividends, rent etc. Less charity / Gift Aid contributions.