+£100k salary, Can SIPP help?

jumbo_elephant

I’m considering opening a SIPP and wanted to just double check my understanding is correct:

For those who make £100k+ you begin to losing your tax free allowance (ie. On 110k, you’re loosing 10k of your £13k personal allowance) and being taxed on the remaining £107k ish at 45%.

If I set up a SIPP where I would donate around £11k a year in to then have my ‘pay’ as 99k. Do you then get your full free allowance back? (Ie. Only getting taxed on the £99k-£13k). Is that all correct?

On paper to be eligible for any form of child care benefits you cannot earn over £100k and they deduct SIPP contributions for the adjusted income. My thought is this will help long term in two ways hopefully.

We also get paid a 20% bonus annually. What can be done about that?

[Deleted User]

jumbo_elephant said:

I’m considering opening a SIPP and wanted to just double check my understanding is correct:

For those who make £100k+ you begin to losing your tax free allowance (ie. On 110k, you’re loosing 10k of your £13k personal allowance) and being taxed on the remaining £107k ish at 45%.

Where on earth are you getting that from? Do you believe that once you hit higher rates of tax that EVERYTHING is tax at the highest rate?

On £110k you are losing £5k of your personal allowance. 

You will be taxed:

7570 tax free
37700 at 20% 
remainder at 40%

On £110k you can make a SIPP contribution of £8k (grossed up to £10k) which will reduce your NSI to £100k, assuming there is no other taxable income. 

SacredStephan

What level of pension contributions are you and your employer currently making, and by what method?

Dazed_and_C0nfused

jumbo_elephant said:

I’m considering opening a SIPP and wanted to just double check my understanding is correct:

For those who make £100k+ you begin to losing your tax free allowance (ie. On 110k, you’re loosing 10k of your £13k personal allowance) and being taxed on the remaining £107k ish at 45%.

If I set up a SIPP where I would donate around £11k a year in to then have my ‘pay’ as 99k. Do you then get your full free allowance back? (Ie. Only getting taxed on the £99k-£13k). Is that all correct?

On paper to be eligible for any form of child care benefits you cannot earn over £100k and they deduct SIPP contributions for the adjusted income. My thought is this will help long term in two ways hopefully.

We also get paid a 20% bonus annually. What can be done about that?

The simple answer is yes, a SIPP can help.  But you have misunderstood quite a lot.

Your Personal Allowance is based on adjusted net income, not taxable income.

You loose your Personal Allowance at a 2:1 rate once adjusted net income reaches £100,002.  So adjusted net income of £110,000 is a loss of £5,000 of your Personal Allowance.

Are you Scottish resident for tax purposes?  If not where does 45% tax come into things?

Contributions to a SIPP do not reduce your taxable income.  So if your taxable income was £110,000 then contributions to a SIPP wouldn't ever change that.  You would still have £110k taxable income.

If your adjusted net income is £100,001 or less than you will retain your full Personal Allowance.

Your bonus will be taxable income and needs to be included when calculating your taxable income (and adjusted net income).