40% Tax

Tom_Brine · 26 May 2018 at 2:09PM

Hello everyone

I have recently been offered a new job paying £50,000.00 per annum. On top of this there is also a car allowance of £537 per month which is subject to tax and NI.

The company pension matches contributions up to 10% (£5000 p/a) my employer will match it.

However with the car allowance being subject to tax and NI this takes my income way above the 40% tax threshold (first time in my life).

I am trying to work out what percentage I will have to pay in order to maximise my tax relief.

The way I see it my income with salary and car allowance is £56444.00. 40% tax kicks in on earnings over £46350. So £10,094.00 will be taxed at 40%. this would mean I would need to pay 18% into my pension (10% plus an extra 8% AVC's) in order to take maximum advantage of the tax relief.

Have I got that correct. I cant help but feel I've missed something fundamental? Does the fact the Car Allowance isn't pensionable affect these figures?

molerat · 26 May 2018 at 2:21PM

As pension % is based on your £50K salary just over 20% is needed, it is 18% of your total including car allowance.

Tom_Brine · 26 May 2018 at 3:02PM

Thanks very much, looks like ill be paying 11% AVC's then. Much appreciated

cloud_dog · 26 May 2018 at 3:13PM

Does the company offer salary sacrifice, as this can take additional monies out of the tax and NI calculations.

Dazed_and_confused · 26 May 2018 at 3:19PM

I cant help but feel I've missed something fundamental?

You only seem to be considering your salary and car allowance but other taxable income such as any other company benefits or (non ISA) savings interest would need to be considered.

And do you live outside of Scotland?

Dox · 26 May 2018 at 5:26PM

Dazed_and_confused wrote: »

I cant help but feel I've missed something fundamental?

You only seem to be considering your salary and car allowance but other taxable income such as any other company benefits or (non ISA) savings interest would need to be considered.

And do you live outside of Scotland?

First £1,000 of any interest (non-ISA) is tax free.

kidmugsy · 26 May 2018 at 6:07PM

Dox wrote: »

First £1,000 of any interest (non-ISA) is tax free.

For anyone near the higher rate threshold it ain't that simple. Plenty of threads on the subject.

Tom_Brine · 28 May 2018 at 4:09PM

Thanks everyone

Research has found the company do offer salary sacrifice for the contributions.

Id forgotten that the amount of interest you can earn tax free also halves with the higher rate tax band. Id assume with salary sacrifice my salary would still technically be a basic rate tax payer and so suffer no such reduction.

Thanks again for all your responses

msallen · 28 May 2018 at 4:24PM

Tom_Brine wrote: »

Thanks everyone

Research has found the company do offer salary sacrifice for the contributions.

Id forgotten that the amount of interest you can earn tax free also halves with the higher rate tax band. Id assume with salary sacrifice my salary would still technically be a basic rate tax payer and so suffer no such reduction.

Thanks again for all your responses

If you were going to earn £999 in interest, then you would need your salary to be £999 under the HR threshold in order to remain a BR payer. If your salary and interest combined took you £1 over the threshold then you would become a HR tax payer and your interest allowance would drop to £500.

Personally I always plan to have a taxable income (salary & interest after pension deductions) of a couple of grand under the threshold thus leaving space for unexpected items (such as work bonuses paid at the end of the tax year)

ukjoel · 28 May 2018 at 7:07PM

Do you have kids - If so you need to consider the tapered drop in child benefit between 50k and 60k.

Anything salary sacrificed into pension is excluded from this so needs to be considered....

40% Tax

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