Put Bonus to Pension???

katkatmachine

Hi All,

My annual salary is £51k and this March before the fiscal year ends I am going to receive a bonus of around £20k. Last year I received the same and because of tax I only received around £11k. I was tax 40%!!!! 

To avoid getting robbed by the taxman again, I am thinking of putting 50% of my bonus to my pension and the 50% as cash. So based on my simple maths:

£10k will go to my pension
£10k * 0.40 = £4k tax
£6k cash remaining take home pay

Is this correct? And is this the best way to go about it? To be honest, Inknow that my future self will tank my now self if I put the bonus into my pension, I’m only 35 and the money has longer time to grow but on the other hand I want to enjoy my bonus too now. I worked hard for it so I was planning to spend it on the holidays I booked this year. But then thinking about the £8k that I lost last year dur to tax is really frustrating! I’m so torn!

I don’t know if this will help but I salary sacrifice 10% of my salary every and my partner and I saves a total of £1700 per month, we also overpay our mortgage £600 per month. 

I would love to hear your thoughts on this. 

Thank you. 

Love,
Kat

P.S.
we have cash £50k now but it’s going to be used to pay for our HTB in the next few months. Around £40-43k of it probably cause the legal fees and stuff. So technically we only have around £6-7k cash right now. 

Dazed_and_C0nfused

katkatmachine said:

Hi All,

My annual salary is £51k and this March before the fiscal year ends I am going to receive a bonus of around £20k. Last year I received the same and because of tax I only received around £11k. I was tax 40%!!!! 

To avoid getting robbed by the taxman again, I am thinking of putting 50% of my bonus to my pension and the 50% as cash. So based on my simple maths:

£10k will go to my pension
£10k * 0.40 = £4k tax
£6k cash remaining take home pay

Is this correct? And is this the best way to go about it? To be honest, Inknow that my future self will tank my now self if I put the bonus into my pension, I’m only 35 and the money has longer time to grow but on the other hand I want to enjoy my bonus too now. I worked hard for it so I was planning to spend it on the holidays I booked this year. But then thinking about the £8k that I lost last year dur to tax is really frustrating! I’m so torn!

I don’t know if this will help but I salary sacrifice 10% of my salary every and my partner and I saves a total of £1700 per month, we also overpay our mortgage £600 per month. 

I would love to hear your thoughts on this. 

Thank you. 

Love,
Kat

P.S.
we have cash £50k now but it’s going to be used to pay for our HTB in the next few months. Around £40-43k of it probably cause the legal fees and stuff. So technically we only have around £6-7k cash right now. 

Salary is often irrelevant for tax purposes.

Ignoring the bonus what do you expect your P60 to show your taxable income as for 2024-25?

Is there any reason you haven't factored in NI?

katkatmachine

Without the bonus, my P60 would probably be around £54k. I also got £3K bonus last December. 

Sorry but I don’t know how to compute the NI. How is it going to affect my bonus?

katkatmachine

I got all the answers now. I asked chatgpt!!!! 

Yes the tax is 40% so i’ll do half and half. All £10k will go to my pension and I will receive cash £5200 just enough pocket money for all the holidays i booked. I think i can live with that. 

Marcon

katkatmachine said:

I got all the answers now. I asked chatgpt!!!! 

Yes the tax is 40% so i’ll do half and half. All £10k will go to my pension and I will receive cash £5200 just enough pocket money for all the holidays i booked. I think i can live with that. 

Using bonus sacrifice (otherwise you'll pay NI on it)?

Cobbler_tone

Bonus is income. I’m in the same boat. I increase my contribution rate to mitigate taxable pay in terms of salary and bonus.

katkatmachine

UPDATE:

I just got my bonus today and it’s more than what I expected. Based on my calculations, gross bonus would have been around £21k but because I asked our finance team to put half on my pension I only received around £6.5k cash. I’m honestly kind of regretting now what I did. Hahahahahhaha. I would have gotten more today if I just took everything in cash but I know my future self will thank me for the decision I made. But damn! It still hurts! Hahahahha. I am still happy though waking up today seeing the money in my bank account. Bwahahahaha. Perfect timing for our holiday next week in Barcelona. I’ve got money to spend now! Wohooo!!!!

ali_bear

Welcome to the higher rate tax bracket. Better to be earning that than not, just think of the enormous public benefit your taxes will bring 

Would it feel easier if your bonus was paid in slices each month? 

You already make good monthly pension contributions. Keep that going and you can look forward to a comfortable retirement. You could increase your monthly salary sacrifice if you are confident of the annual bonus every year. But don't over-save into a DC pension fund, if you do you could end up paying higher rate tax on the pension income anyway. 

Albermarle

o avoid getting robbed by the taxman again,
. But then thinking about the £8k that I lost last year dur to tax is really frustrating! I’m so torn!

You will most likely be paying tax for the next 50 years, so probably a good idea to not get so stressed/negative about it. Tax is largely the price we pay for living in a civilised society with schools, hospitals, police, armed forces etc 

As the saying goes ' There are only two things certain in life - Death and Taxes.

kempiejon

Albermarle said:

o avoid getting robbed by the taxman again,
. But then thinking about the £8k that I lost last year dur to tax is really frustrating! I’m so torn!

You will most likely be paying tax for the next 50 years, so probably a good idea to not get so stressed/negative about it. Tax is largely the price we pay for living in a civilised society with schools, hospitals, police, armed forces etc 

As the saying goes ' There are only two things certain in life - Death and Taxes.

My bonuses always went into the SIPP.
I am not surprised that people talk this way about paying tax but it seems so illogical. It's not a surprise what our tax rates are and I agree with Albermarle it's the what we pay to be in this society. I see it as kinda rent and like all rent it's too dear and the service is poor so it's good to !!!!!!.
It is simplicity to remove yourself from income tax, get a job under £12k or better yet, put all your income over £12570 into your pension and reclaim any tax paid, or pay that last £12570 and receiver tax money. I've removed myself from the tax system several times over the decades by giving up work, staying low paid or filling my SIPP with my all my UK relevant income.

Mick70

If you sacrifice the bonus then yes you won’t get income tax and it can go into your pension pot .
however it will go into your pension pot as an Employer contribution so will get no tax relief added and when you come to want your pension later in life it’s likely to get taxed then (prob 20%), so don’t lose much sleep over the decision .
what you suggest sounds fine , half into pension and half into salary . Build your pension but if your young don’t get obsessed over it 👍