PAYE Cutting Tax

SecretAcct113

Hi folks

Firstly, I realise this post makes me extremely lucky. 

I am PAYE employed in a good job with an salary that has recently increased to close to £100k pa. I also get variable bonus which this year took my total earnings to £120k for the 24/25 tax yr. 

I take advantage of maximum DC workplace pension contribution - I pay in 6% which is double matched by my employer. 

I also participate in sharesave schemes to the maximum of £500 per month, and also maximum share incentive plan each month too. 

The amount of income tax I paid is very high and I understand that my tax free personal allowance is almost non existent because of my total income. 

My potential bonus for 25/26 could be higher than 24/25 and I'm feeling like it is no longer beneficial to try to progress my career as I'd have to have a fairly hefty increase to benefit any further since the tax system takes much more at this level. 

Are there any ways that I can reduce my tax? Would paying pension AVCs help?

penners324

Increasing your pension contributions will do that.

Up your contributions into your work scheme to 20%+.

Is it a salary sacrifice scheme?

DRS1

It certainly makes a lot of sense to up your pension contributions to get your total taxable income (not just earnings but any savings interest or dividends or rent) below the dreaded £100k mark

Gift aid is another way to save some tax - assuming you are of a charitable disposition.

NorthYorkie

As a higher rate taxpayer the relief for Gift Aid is given by extending the Basic Rate Band by the gross amount of your donation. A donation of £1,000 is treated as a gross amount of £1,250, from which the Revenue pretends that you have deducted basic rate tax (at 20%, therefore £250). So, instead of paying 40% tax on that part of your income equal to the gross amount, you only pay 20%, thus saving £250 in tax. However, if the intention is purely to save tax, you will end up out of pocket by £750 which is rather pointless.

Sometimes it's better to pay the tax!

SecretAcct113

penners324 said:

Increasing your pension contributions will do that.

Up your contributions into your work scheme to 20%+.

Is it a salary sacrifice scheme?

Yes it is a salary sacrifice scheme - does that change what I should do?

Albermarle

SecretAcct113 said:

penners324 said:

Increasing your pension contributions will do that.

Up your contributions into your work scheme to 20%+.

Is it a salary sacrifice scheme?

Yes it is a salary sacrifice scheme - does that change what I should do?

No, Just means you will also gain a bit by paying less NI.

Would paying pension AVCs help?

It is best not to refer to them as AVC's as it can cause confusion ( in case you ever have any other questions about your pension) AVC refers to a specific type of pension arrangement.
In your case all you are doing is changing/increasing your current contribution. 

Strummer22

SecretAcct113 said:

penners324 said:

Increasing your pension contributions will do that.

Up your contributions into your work scheme to 20%+.

Is it a salary sacrifice scheme?

Yes it is a salary sacrifice scheme - does that change what I should do?

You say "I take advantage of maximum DC workplace pension contribution - I pay in 6% which is double matched by my employer." - presumably your employer allows you to contribute more yourself (or sacrifice more, in this case), but will not double match any additional contributions? If so, just tell them what additional amount you want to sacrifice. 

First you need to decide what you want to achieve (in your case presumably it's avoiding the personal allowance taper) and then work out how much you'd need to sacrifice into your pension to achieve this. Check https://www.gov.uk/guidance/adjusted-net-income to work out your adjusted net income - to avoid personal allowance taper you want this to be less than £100,000.

Total contributions to your pension below £60,000 per year aren't taxed. See https://www.gov.uk/tax-on-your-private-pension/annual-allowance.