£100k Tax Trap - AVC payments Net salary Gross?

moneysaverpension101

Hi all,

I recently received a bonus which tips me into the £100k tax trap (yes I know, boohoo me).  I would like to reduce my salary by making additional payments into my pension.  Only problem is, my pension requires additional payments to be made from my bank account, i.e. post deductions, not pre-deductions.  And so I dont know how much I should pay to have the net effect of reducing my salary in the eyes of the tax man.  I am also not 100% certain if this is going to achieve the effect that I desire.  Is anyone here experienced in dealing with this situation to advise please?

Received £109k income, also have £1.6k BIK healthcare and contribute myself 4% towards my pension (which is not excluded from the £109k income), Tax Code is also £11,300.

Many thanks for your time and consideration

AlanP_2

Making a pension contribution won't reduce your income but it will affect the amount of  taxable income subject to the different tax rates.



So with an allowance of £11,300 that is all at 0% / tax free

The next £37,700 is taxed at 20% (basic rate)

Over that you are at Higher Rate of 40% and above.


If you paid £12k of your own money into your pension that would be a £16k GROSS contribution and the BR band would be extended by that £16k so you would only pay tax at 20% on it and not at 40% (you need to request that HMRC make this adjustment and work out what additional tax relief you should get).

This will continue up the ladder and take you out of the highest tax rates.


You need to do the calculations to work out the optimum point but always work in GROSS contribution numbers so your actual contribution plus 25% (= 20% tax relief) as that is what HMRC will use for their calculations.

Dazed_and_C0nfused

moneysaverpension101 said:

Hi all,

I recently received a bonus which tips me into the £100k tax trap (yes I know, boohoo me).  I would like to reduce my salary by making additional payments into my pension.  Only problem is, my pension requires additional payments to be made from my bank account, i.e. post deductions, not pre-deductions.  And so I dont know how much I should pay to have the net effect of reducing my salary in the eyes of the tax man.  I am also not 100% certain if this is going to achieve the effect that I desire.  Is anyone here experienced in dealing with this situation to advise please?

Received £109k income, also have £1.6k BIK healthcare and contribute myself 4% towards my pension (which is not excluded from the £109k income), Tax Code is also £11,300.

Many thanks for your time and consideration

Is reducing your salary really important?

Your Personal Allowance is based on your adjusted net income, which for most people is total taxable income (including taxable interest and dividends taxed at 0%) less any Gift Aid donations and relief at source pension contributions.  As relief at source contributions don't reduce your taxable income you can easily have total taxable income of say £110k and retain your full Personal Allowance.

I don't really know what you mean by which is not excluded from the £109k income

Maybe you could confirm what you expect your P60 will show as your taxable earnings.

Is the BIK payrolled (included in your P60 pay figure) or reported via a P11D?

What other taxable income do you have?

Can you provide the breakdown of your tax code?