Income over £100K - 60% tax rate effect

[Deleted User]

Am I right in saying that if gross income exceeds £100K then it starts to eat into personal allowance? Rather than income after personal allowance exceeding £100K.

Sounds bad. Am I right that if I pay an AVC into pension it will reduce this? Better than paying 60%

If I remember its complicated. If I'm on course to earn £102K then its not £2K I need to pay into pension is it?

DullGreyGuy

Yes, once you go over £100k you lose £1 PA for each £2 you are over

DRS1

If I'm on course to earn £102K then its not £2K I need to pay into pension is it?

Isn't it?

Do you have other taxable income?  If not then won't £2k get you where you want to be?  You can do more if you want - after all you would be saving 40%

Nomunnofun1

[Deleted User] said:

Am I right in saying that if gross income exceeds £100K then it starts to eat into personal allowance? Rather than income after personal allowance exceeding £100K.

Sounds bad. Am I right that if I pay an AVC into pension it will reduce this? Better than paying 60%

If I remember it’s complicated. If I'm on course to earn £102K then it’s not £2K I need to pay into pension is it?

If it’s a SIPP you would need to pay £1600 which will be grossed up to £2000 by the pension company but give yourself some leeway!

You would claim the additional tax relief of £400 by informing HMRC. 

Grumpy_chap

[Deleted User] said:

Am I right in saying that if gross income exceeds £100K then it starts to eat into personal allowance? Rather than income after personal allowance exceeding £100K.

Sounds bad. Am I right that if I pay an AVC into pension it will reduce this? Better than paying 60%

If I remember its complicated. If I'm on course to earn £102K then its not £2K I need to pay into pension is it?

Pretty much "yes" to all the questions.

Above £100k ANI, your effective tax rate (for the next £25k) is 60% (62% if NI is also considered).  Can you make the pension contributions via SS?

If you pay anything above £100k (up to £125k) into a pension, the effective cost is only 40 pence (or 38 pence if also considering NI) for each £1 of pension contribution.  

If you make the pension contribution via SS, then £2k sacrificed from salary is £2k into the pension.
If you make the pension contribution from taxed income, then £1.6k paid in is grossed up to £2k.  The higher rate tax  paid is then reclaimed via tax return.

Remember - it is your ANI that affects whether you trip into the 60% bracket, not just your earned income.  Have you considered any interest income, dividends, etc?

One other thing - if relevant - 1 pence above £100k means all eligibility for tax free child care goes.

EDIT to add:  assume available AA for additional pension contributions 

Dazed_and_C0nfused

[Deleted User] said:

Am I right in saying that if gross income exceeds £100K then it starts to eat into personal allowance? Rather than income after personal allowance exceeding £100K.

Sounds bad. Am I right that if I pay an AVC into pension it will reduce this? Better than paying 60%

If I remember its complicated. If I'm on course to earn £102K then its not £2K I need to pay into pension is it?

No.  It's when adjusted net income reaches £100,002 that you start to lose your Personal Allowance.

For most people adjusted net income is the total of all taxable income (including interest and dividends taxed at 0%) less Gift Aid donations and "relief at source" pension contributions.

You cannot deduct net pay or salary sacrifice contributions as these have already been factored in when establishing your taxable income.  And salary sacrifice is actually an employer contribution.