Tax reduction

Bernie25

Hi Folks,

Can you please advise how I can reduce my tax please or how best to maximise my incoming.

I am a single dad ( divorced ) earning a yearly salary of £121,404.00 
I already take advantage of yearly ISA ( 20k ) i.e contributed into a stock and shares ISA 
I am on an emergency tax code starting with K265

I am due a pay rise in April. Is there a number I need to aim to avoid further taxes or is the best way forward here is to send any salary above the £99,999 threshold into my pension pot?

Currently I have a salary sacrifice / pension contribution of £505 monthly that my employer matches.

Thank you for your advice!
B

eskbanker

Increasing sal sac pension contributions does seem an obvious route to get below the £100K mark.

Dazed_and_C0nfused

Bernie25 said:

Hi Folks,

Can you please advise how I can reduce my tax please or how best to maximise my incoming.

I am a single dad ( divorced ) earning a yearly salary of £121,404.00 
I already take advantage of yearly ISA ( 20k ) i.e contributed into a stock and shares ISA 
I am on an emergency tax code starting with K265

I am due a pay rise in April. Is there a number I need to aim to avoid further taxes or is the best way forward here is to send any salary above the £99,999 threshold into my pension pot?

Currently I have a salary sacrifice / pension contribution of £505 monthly that my employer matches.

Thank you for your advice!
B

Given the loss of Personal Allowance issue you might want to rethink the mix of pension and ISA.  Pension will be far more tax efficient.

Don't forget to factor in any other taxable income such as dividends and interest, even when taxed at 0% it is part of your adjusted net income.  Which is what your Personal Allowance is based on.

The emergency tax code is 1257L.  K265 is just a normal tax code, albeit one that results in a lot of tax being deducted!

TheSpectator

Your £505 per month pension contribution is pretty small relative to your earnings. Appreciate it's Employer matched but % wise of your salary is it going to provide what you need in retirement?

Albermarle

As above, apart from the tax issue, your pension contributions are very low compared to your salary.
If you want to retire early and/or with an income that is anywhere close to what you have now, you need to be adding a lot more. 

SVaz

That pension contribution is tiny, my Daughter pays more than than on £60k.  

Bernie25

Thanks for all the input so far. Very helpful!

The reason why the pension is tiny is I invest in oversea properties at the moment so I need the cashflow in hand. Diversifying as opposed as only bulking the pension pot!  Is that wise still?

Going forward, I will be increasing by pension contribution adhoc when I do not need to show affordability for mortgages/loans etc related to other investment.

Thank you folks.

Any other ideas? As for a salary bracket that would be making me avoid the peak tax ( 60%) gap? I read that up to 125k, one pay this extra tax but not sure if earning more than that will make one skip it. Still trying to understand the tax maze!

Cheers,
B

TheSpectator

Bernie25 said:

Thanks for all the input so far. Very helpful!

The reason why the pension is tiny is I invest in oversea properties at the moment so I need the cashflow in hand. Diversifying as opposed as only bulking the pension pot!  Is that wise still?

Going forward, I will be increasing by pension contribution adhoc when I do not need to show affordability for mortgages/loans etc related to other investment.

Thank you folks.

Any other ideas? As for a salary bracket that would be making me avoid the peak tax ( 60%) gap? I read that up to 125k, one pay this extra tax but not sure if earning more than that will make one skip it. Still trying to understand the tax maze!

Cheers,
B

Tax wise your investment strategy is poor to say the least. You seem to have an understanding of the 60% 'tax trap' but are taking no steps to mitigate this.

At the very least you should be salary sacrificing enough so that your total taxable income is below £100k so that you fully benefit from  the tax free personal allowance. There is also the argument you should sacrifice down to the higher rate threshold. 

Now is the time to fill your pension while legislation still allows.

redpete

You can get plenty of diversification within a pension pot, including overseas property funds.  Putting money into individual overseas properties seems a pretty concentrated (i.e. non-effective) diversification.

Bernie25

Indeed my current strategy is not optimum and I am fully aware and hence why reaching out to get some ideas. Thank you all for your input!

Very insightful!

All the best!

penners324

To get below 100k your pension contributions need to be about £2100 per month. Ie quadruple your current contribution rate