Avoiding higher rate of tax

DJ123

Hello

I am on the cusp of earning £50,000 per year (my monthly wage fluctuates slightly because I am on call. More call outs = more money). If I understand it right, if I earn over £50,000 then I will be a higher rate tax payer, which I am trying to avoid. I am able to modify my pension contributions month to month. Would it be sensible to dramatically increase my pension contribution for March so that I definitely do not earn £50,000 in this tax year, and thus remain a standard rate tax payer? Seems a good option for me if I do not need the money now (which I don't).

Dazed_and_C0nfused

DJ123 said:

Hello

I am on the cusp of earning £50,000 per year (my monthly wage fluctuates slightly because I am on call. More call outs = more money). If I understand it right, if I earn over £50,000 then I will be a higher rate tax payer, which I am trying to avoid. I am able to modify my pension contributions month to month. Would it be sensible to dramatically increase my pension contribution for March so that I definitely do not earn £50,000 in this tax year, and thus remain a standard rate tax payer? Seems a good option for me if I do not need the money now (which I don't).

Why dramatically?

If you earn say £50,500 in taxable earnings and have no other taxable income you would pay higher rate tax on £230.  Which would be an extra £46 in tax compared to it all being at basic rate.

Or have you omitted some key details?

What do you expect your P60 to show your taxable pay as?  

Do you have any other taxable income?

What method is used to make any existing pension contributions?  Net pay, relief at source or salary sacrifice?

Mark_d

I adjust my  pension contributions such that my take-home pay is £3k per month.  That's more than plenty for my lifestyle and keeps me below the higher rate tax bracket

DE_612183

What has your taxable earnings been since April 2024? I presume you have two months left ( Feb & March ) of pay days.

Albermarle

Getting higher rate tax relief on pension contributions is normally a good thing . However as mentioned if you are only just above the higher rate limit, then the higher rate relief will only be small.

DJ123

Dazed_and_C0nfused said:

DJ123 said:

Hello

I am on the cusp of earning £50,000 per year (my monthly wage fluctuates slightly because I am on call. More call outs = more money). If I understand it right, if I earn over £50,000 then I will be a higher rate tax payer, which I am trying to avoid. I am able to modify my pension contributions month to month. Would it be sensible to dramatically increase my pension contribution for March so that I definitely do not earn £50,000 in this tax year, and thus remain a standard rate tax payer? Seems a good option for me if I do not need the money now (which I don't).

Why dramatically?

If you earn say £50,500 in taxable earnings and have no other taxable income you would pay higher rate tax on £230.  Which would be an extra £46 in tax compared to it all being at basic rate.

Or have you omitted some key details?

What do you expect your P60 to show your taxable pay as?  

Do you have any other taxable income?

What method is used to make any existing pension contributions?  Net pay, relief at source or salary sacrifice?

When I said dramatically I was just meaning that I'm not tinkering between 5% and 6%. More like going up to 30% in one hit. No other taxable income. Salary sacrifice. I take your point about going just over £50,000 wouldn't actually make much difference - hadn't really factored that in to my calculations.

DJ123

Mark_d said:

I adjust my  pension contributions such that my take-home pay is £3k per month.  That's more than plenty for my lifestyle and keeps me below the higher rate tax bracket

I like this - thanks. It's nice and simple and I think I'll do it next year! 

Grumpy_chap

DJ123 said:

When I said dramatically I was just meaning that I'm not tinkering between 5% and 6%. More like going up to 30% in one hit. No other taxable income. Salary sacrifice. I take your point about going just over £50,000 wouldn't actually make much difference - hadn't really factored that in to my calculations.

The maximum pension contribution will be constrained by NMW rules.
Does your employer permit regular adjustments to the SS percentage?

Yorkie1

Albermarle said:

Getting higher rate tax relief on pension contributions is normally a good thing . However as mentioned if you are only just above the higher rate limit, then the higher rate relief will only be small.

Although, there is also the fact that if you move into the higher rate, only £500 of your savings interest is then taxed at 0%, as opposed to £1000 if you're a basic rate tax payer.

Might not be relevant to the OP, but worth reminding others.

eskbanker

Yorkie1 said:
Although, there is also the fact that if you move into the higher rate, only £500 of your savings interest is then taxed at 0%, as opposed to £1000K if you're a basic rate tax payer.

No tax on a million quid, now that would open up some revenue-earning possibilities for the Treasury!



* yes, I know that there are ISA millionaires....

Yorkie1

eskbanker said:

Yorkie1 said:
Although, there is also the fact that if you move into the higher rate, only £500 of your savings interest is then taxed at 0%, as opposed to £1000K if you're a basic rate tax payer.

No tax on a million quid, now that would open up some revenue-earning possibilities for the Treasury!



* yes, I know that there are ISA millionaires....

Haha, good spot!! (now edited lol)