Taking a Bonus

[T5SOR]

I am not up to speed with the best way of taking a bonus these days, but are there any tax efficient ways of doing it? If you take it as straight cash it is 40/50% tax?

I seem to remember a few years ago it was beneficial to take it as vouchers (John Lewis etc.)?

[oldaudi]

I take mine as cash which results in a 40% haircut but then I put it in my SIPP which results in the 40% coming back from the government once I fill in the tax return

[Podie]

Bonus sacrifice into pension?

[oldaudi]

Yup. Not all the time but there is very little I want now so I tuck it away the more I put in there the earlier I can retire! then Ill spend it on crap I don't need which is only what I would do now. Need to put it away otherwise the Mrs will want new carpets and wallpaper

[romeogolf]

I was about to ask an almost identical question.

When receiving a bonus, is it taxed at you regular rate or is it spread across a year somehow?

So, as a 20% taxpayer, if I get a £500 bonus, would I see a £400 increase in my regular pay for that month? Or £352 when you take 12% NI contributions out?

[Claudia Skies]

oldaudi said:

I take mine as cash which results in a 40% haircut but then I put it in my SIPP which results in the 40% coming back from the government once I fill in the tax return

^^^^ This, this, this!

• Your investments gross up "tax free". The benefit of tax free compounding can be enormous.
• At the end you can draw out 25% completely tax free. Brilliant.
• And the rest is only taxed at your marginal rate at that time. The "dream ticket" available to many people is to get tax relief at 40% going in and then only pay 20% tax on what they draw out. It really can be Christmas every day!

Pension investing makes soooo much sense you wonder why there's such negativity about it on PH. Personally I think it's because people don't make the effort to understand how good it can be and/or are looking for an excuse not to save for their future.

[oldaudi]

Finally! Someone can see my point of view!! I also get money back from the money that I put into my kids pensions/SIPP. Free money every one!! And you appear to be from Bristol like me..... perhaps we spend our money differently down here

[Claudia Skies]

oldaudi said:

I also get money back from the money that I put into my kids pensions/SIPP. Free money every one!!

Ba-ding!
Ba-ding!

There are fantastic opportunities for people with the inclination and disposable income to set up SIPPs for future generations, or for a non-working partner,

• You put in £100 which only costs you £80
• Then the £100 benefits from compounding of tax-free returns.

[Hungrymc]

Over the last few years I've salary sacrificed mine into my pension. Actually started when I was in the salary range where you rapidly reduce your personal allowance as well as paying tax and NI. Add it all together and if seemed I'd be only keeping 40% of it. Much rather take the 25% tax free and the rest at the then nominal rate..... Although, I'm mindful penson laws are likley to change again in the next 20/25 years so I could regret the decision by then.