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  • FIRST POST
    • Chippy99
    • By Chippy99 22nd Feb 18, 9:30 AM
    • 68Posts
    • 14Thanks
    Chippy99
    Salary sacrifice pension question
    • #1
    • 22nd Feb 18, 9:30 AM
    Salary sacrifice pension question 22nd Feb 18 at 9:30 AM
    Hi

    I've been fortunate enough to land a job that pays 116,600 basic salary and am aware that that would mean me losing 8,300 of personal allowance (16,600 x 50p in the pound).

    This amounts to a 60% tax rate on my income over 100,000: 40% higher rate, plus 40% on every 50p in the pound due to the lost personal allowance.

    If I put an extra 16,600 into my pension through salary sacrifice, would that mean I avoid the loss of personal allowance and this penal marginal tax rate on my highest earning?

    Thanks for any advice..
Page 1
    • lisyloo
    • By lisyloo 22nd Feb 18, 9:59 AM
    • 21,836 Posts
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    lisyloo
    • #2
    • 22nd Feb 18, 9:59 AM
    • #2
    • 22nd Feb 18, 9:59 AM
    I am not sure of the amounts, but if you salary sacrifice then your income goes down, so you'll be taxed as if receiving a lower income.

    As well as not paying income tax on the amount that is sacrificed you will also not pay employees NI (2%).

    Ask your employer what happens to the employers NI that's saved (13.8%). My employer passes this on in full to my pension, my last employer passed on 50% of the 13.8% saving.
    • Dazed and confused
    • By Dazed and confused 22nd Feb 18, 10:56 AM
    • 2,561 Posts
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    Dazed and confused
    • #3
    • 22nd Feb 18, 10:56 AM
    • #3
    • 22nd Feb 18, 10:56 AM
    Chippy99

    You seem pretty accurate except in one regard.

    Loss of the personal allowance is unrelated to you salary. It is something called "adjusted net income" which matters (Google is your friend).

    You could have salary of 116,600 and pay, say, 15% into the company pension scheme so your taxable pay (P60) amount would be 99,110.

    Or you could have taxable pay of 116,600 and pay say 20,000 into a SIPP or personal pension so you are taxed on 116,600 but your adjusted net income is less than 100k so you keep your personal allowance.

    Obviously other income needs to be considered and I'm not recommending any particular option but there are many ways to skin a cat
    • Chippy99
    • By Chippy99 22nd Feb 18, 12:55 PM
    • 68 Posts
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    Chippy99
    • #4
    • 22nd Feb 18, 12:55 PM
    • #4
    • 22nd Feb 18, 12:55 PM
    Thanks Chaps. Perhaps I should be planning to get my income sub-80k in case Catweazle gets in!

    But @Dazed, either I am confused by what you mean, or you are mistaken perhaps? The fact is you lose 50p of personal allowance for every 1 you earn over 100,000.

    So loss of personal allowance absolutely IS related to your salary.
    Last edited by Chippy99; 22-02-2018 at 3:11 PM.
    • xylophone
    • By xylophone 22nd Feb 18, 6:35 PM
    • 25,372 Posts
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    xylophone
    • #5
    • 22nd Feb 18, 6:35 PM
    • #5
    • 22nd Feb 18, 6:35 PM
    http://www.kirkrice.co.uk/blog/personal-allowance-do-i-have-to-lose-it-when-earning-over-100k/

    https://www.ft.com/content/7941c1e6-f03d-11e5-aff5-19b4e253664a

    The writer in the article above (2016 - 2017 tax year) suggested that as for someone on income between 100,000 and 122,000, the personal tax-free allowance was tapered away, (creating an effective marginal rate of 60 per cent), sacrificing salary might be especially beneficial.
    Last edited by xylophone; 22-02-2018 at 6:48 PM. Reason: format
    • Winebottle
    • By Winebottle 22nd Feb 18, 8:24 PM
    • 6 Posts
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    Winebottle
    • #6
    • 22nd Feb 18, 8:24 PM
    • #6
    • 22nd Feb 18, 8:24 PM
    No you won't lose your allowance if you do that.

    The point Dazed is that it is not technically correct to say it applies on earnings over 100,000 It applies to income over 100,000 after certain deductions have been made. Pension contributions are one of those deductions so you would not need to do it by salary sacrifice to keep your allowance, any pension contributions you pay will come off it.

    The are other things that could reduce it for example trading loses or charity donations.
    • Dazed and confused
    • By Dazed and confused 22nd Feb 18, 8:44 PM
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    Dazed and confused
    • #7
    • 22nd Feb 18, 8:44 PM
    • #7
    • 22nd Feb 18, 8:44 PM
    My post seemed pretty clean imho, "adjusted net income" is what matters.
    • Lotak
    • By Lotak 23rd Feb 18, 12:00 PM
    • 18 Posts
    • 32 Thanks
    Lotak
    • #8
    • 23rd Feb 18, 12:00 PM
    • #8
    • 23rd Feb 18, 12:00 PM
    As Dazed said, its about "Adjusted Net Income" rather than salary.
    So if you earn 116,600 (please god by all of us) and you sacrifice 16,600 through your payroll towards your company pension scheme or payroll giving, OR, you invest in a private pension (or donate to charity) 13,280, then your ANI will be 100,000 and you will lose none of your personal allowance.

    13,280 = 16,600*80%. You'd also be able to reclaim 3,320 in tax from your self assessment.
    Current Debt (excluding mortgage) - 18k
    Aim to clear all debt - Feb 2020
    Current PaD - 206
    • Chippy99
    • By Chippy99 23rd Feb 18, 1:55 PM
    • 68 Posts
    • 14 Thanks
    Chippy99
    • #9
    • 23rd Feb 18, 1:55 PM
    • #9
    • 23rd Feb 18, 1:55 PM
    Thanks again chaps. My pension scheme is salary sacrifice; I just needed to decide how much to put in it.
    • Chippy99
    • By Chippy99 23rd Feb 18, 1:58 PM
    • 68 Posts
    • 14 Thanks
    Chippy99
    http://www.kirkrice.co.uk/blog/personal-allowance-do-i-have-to-lose-it-when-earning-over-100k/

    https://www.ft.com/content/7941c1e6-f03d-11e5-aff5-19b4e253664a

    The writer in the article above (2016 - 2017 tax year) suggested that as for someone on income between 100,000 and 122,000, the personal tax-free allowance was tapered away, (creating an effective marginal rate of 60 per cent), sacrificing salary might be especially beneficial.
    Originally posted by xylophone

    Precisely my point!
    • Snakey
    • By Snakey 24th Feb 18, 11:59 AM
    • 1,061 Posts
    • 1,281 Thanks
    Snakey
    1. Any other income? Watch out for bank interest in particular... people often say it's exempt up to 500, actually it's taxable but at 0%, meaning that if you salsac down to exactly 100k and then receive 500 bank interest, your income is 100,500 and you get a bit of clawback giving you an effective tax rate of 20% on the bank interest. Same thing for non-ISA dividends.

    2. When is your annual pay review? Do you get a bonus? Depending on how flexible your employer is with salary sacrifice arrangements you might be well-advised to give yourself a cushion rather than stopping dead on 100k, just in case you get any extra part-way through the year. Lives under the heading "nice problem to have" but even so, it will irk you no end if you get caught by it.
    • ChuckMountain
    • By ChuckMountain 28th Feb 18, 9:31 PM
    • 148 Posts
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    ChuckMountain
    As Snakey states you need to watch out for bonuses.

    If you decided that you are for example putting 15% of your salary into your pension to reduce it to below 100k then your tax code assuming nothing else would normally give the full personal allowance for the year.

    If you say got a 20% bonus and its towards the end of the tax year you could be a in a position where PAYE applies only 40-45% of tax to the bonus and you are left in a position where you owe the tax man the difference. A few people on these threads have been caught out with a large tax bill it could be as much as 40% of your personal allowance (equating to the 60% notional tax) so depending on the size of bonus could be as much as an extra 4,600 in tax.

    You also need to watch for any shares\dividends they offer as they might well count as income.

    Is there a car as well as that will BIK.

    If you are not already then you will probably end up doing self assessment if you earn over 100k.
    • burgerandbreadcrumbs
    • By burgerandbreadcrumbs 28th Feb 18, 10:01 PM
    • 4 Posts
    • 1 Thanks
    burgerandbreadcrumbs
    As the others have noted, it is a matter of looking at all your sources of income to determine whether your adjusted net income exceeds 100k. And benefits in kind, such as a company car, interest free company loans, health insurance will lower your personal allowance anyway. My expectation is that you will not have a full personal allowance.

    A futher consideration is if your employer will pay into your pension as well. Given your salary, the maximum contribution that can be made into all of your pension schemes is 40,000 in this tax year (you may be able to carry forward unused amounts from your prior three tax years and so can put in more). Any excess will result in a 25% tax charge on that excess which will need to be reported by you in your self assessment return.

    I suggest you engage a financial adviser/wealth planner.
    • Chippy99
    • By Chippy99 5th Mar 18, 4:34 PM
    • 68 Posts
    • 14 Thanks
    Chippy99
    Thanks again chaps. I think I will simply make sure my total income from all sources falls below 100k. For people fortunate enough to earn way more than 100k/y then perhaps the marginal 60% tax rate on the income band from 100k to circa 122k is not too upsetting. But for someone earning 116k, it's pretty galling to be paying 60%, when the Additional Higher Rate is "only" 45%!

    So I will avoid it.
    • ChuckMountain
    • By ChuckMountain 5th Mar 18, 4:59 PM
    • 148 Posts
    • 47 Thanks
    ChuckMountain
    Yes it was introduced as a leaving present by the last Labour government

    It's similar to the loss of Child Benefit and creates another 60% tax situation which is ridiculous.

    Just watch the bonus situation as that can screw up your planning if you get one as they are usually variable. In some ways if you can't reduce the amount to below 100k its better to declare it via the tax code then when you do get bonus you have paid correct tax on it.

    Also if you are allowed to buy holiday for example from your company that will reduce your income.
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