Income/Bonus over £100k

[london28]

With earnings of between £100,000 and £122,000 attracting an effective tax rate of 60%, what options are available to reduce the tax bill / divert income pre-tax?

eg. salary sacrifice / pensions / other options?

In this case, it is a bonus that is taking total earnings into the 100k-122k bracket.

It seems crazy to me, that for £22,000 gross, the net received after tax and NI is £8,360. - ie the people in this slim bracket are taxed the highest in the UK.

Would like to keep on topic to opinions on options available.

Assuming not married, no kids, own a house with a mortgage.

[GT03ROB]

You've covered the options really & pension is possibly the best option.

[sidicks]

london28 said:

With earnings of between £100,000 and £122,000 attracting an effective tax rate of 60%, what options are available to reduce the tax bill / divert income pre-tax?

eg. salary sacrifice / pensions / other options?

In this case, it is a bonus that is taking total earnings into the 100k-122k bracket.

It seems crazy to me, that for £22,000 gross, the net received after tax and NI is £8,360. - ie the people in this slim bracket are taxed the highest in the UK.

Would like to keep on topic to opinions on options available.

Assuming not married, no kids, own a house with a mortgage.

Not really the case, as anyone earning more than £122k will be taxed the same marginal rate within the £100k-£122k band and will be paying a higher average rate overall (as well as a higher £ rate)!

[Maxf]

Damn - this has passed me by.

So, if someone just creeps into the bracket - say gets £110k after a bonus of say £30k and the company offers a salary sacrifice scheme to allow an amount of bonus to go into the pension as a one off contribution, is the best thing to do to put £10k into the pension, as the £10k would be £4k net vs £10k into the pension (or does this gross up to more)? Assuming you don't desperately need the £4K obviously.

[mikees]

Maxf said:

Damn - this has passed me by.

So, if someone just creeps into the bracket - say gets £110k after a bonus of say £30k and the company offers a salary sacrifice scheme to allow an amount of bonus to go into the pension as a one off contribution, is the best thing to do to put £10k into the pension, as the £10k would be £4k net vs £10k into the pension (or does this gross up to more)? Assuming you don't desperately need the £4K obviously.

You need a financial adviser

[isleofthorns]

I'm surprised this tax grab hasn't had wider press - higher earners seem to accept it without much complaint!

bearing in mind that this is only direct taxation... if you spend your 4k on petrol, the marginal rate is a joke..

[isleofthorns]

just another thought.... if you're on the vat margin scheme (like a car dealer), and take dividends, then for every 1000 you earn in trading profit, you'll end up with about 300 in your pocket....

[fat80b]

brickwall said:

the only stipulation is they have to make their choice before the bonus is known (or even formally decided, I believe).

This was the way it worked in my previous place - you had to fill in the salary sacrifice form before the bonus amount was decided.

If you are borderline, it almost certainly makes sense to do this and stay under the threshold for a variety of reasons.

Bob

[RizzoTheRat]

Presumably you can also dump a lump sum in a private pension fund. The pension provider will claim the basic 20% back but you can then claim the rest back on self assessment. That solves the issue of notifying your employer in advance.

[supercommuter]

isleofthorns said:

I'm surprised this tax grab hasn't had wider press - higher earners seem to accept it without much complaint!

bearing in mind that this is only direct taxation... if you spend your 4k on petrol, the marginal rate is a joke..

I think this as well, people bh and moan about tax in the lower rates. When you get to the 100k plus and start getting taxed horrendously you really are getting hammered.

If you were to spend 4k on fuel another 2k of that is tax as well. So from your 10k you are getting 2k net...lovely.

I think at this level of earnings people are 'embarrassed' to bh about it as to some people these types of incomes are in the stratosphere.

[rotarymazda]

london28 said:

With earnings of between £100,000 and £122,000 attracting an effective tax rate of 60%, what options are available to reduce the tax bill / divert income pre-tax?

eg. salary sacrifice / pensions / other options?

In this case, it is a bonus that is taking total earnings into the 100k-122k bracket.

It seems crazy to me, that for £22,000 gross, the net received after tax and NI is £8,360. - ie the people in this slim bracket are taxed the highest in the UK.

Salary sacrifice can get rid of £40K per year. And don't forget you can top up previous years if you haven't done the full £40K before.

P.S. At £50-60K with two kids, effective tax rate can be over 65% as child benefit withdrawal kicks in. With more kids, the effective rate goes even higher.

VCTs are another option (don't do them myself as I've personally seen how the funds are spent)

Charitable contributions.

[theboss]

supercommuter said:

isleofthorns said:

I'm surprised this tax grab hasn't had wider press - higher earners seem to accept it without much complaint!

bearing in mind that this is only direct taxation... if you spend your 4k on petrol, the marginal rate is a joke..

I think this as well, people bh and moan about tax in the lower rates. When you get to the 100k plus and start getting taxed horrendously you really are getting hammered.

If you were to spend 4k on fuel another 2k of that is tax as well. So from your 10k you are getting 2k net...lovely.

I think at this level of earnings people are 'embarrassed' to bh about it as to some people these types of incomes are in the stratosphere.

It doesn't receive any coverage in the press because the baying masses don't care - and you can bet that any attempt to repeal it will be vilified as a "tax cut for the rich".

OP it's not too late if you've already been paid (assuming it's this tax year), you can make a personal contribution to your pension and you'll get the tax back. It's more efficient for your employer to have done this directly because doing so avoids NICs as well as tax altogether, but it's the employer who has paid the bulk of the NICs at this level of income (13.8% employer vs 2% employee).

[theboss]

md4776 said:

Have a look at the average or median household income in the uk. 100 thousand a year is 97th/ 98th percentile of earners in the country.

I don't doubt these earners are vastly better off than average - my point is that there's a ratchet effect by which punitive marginal tax rates can be introduced but then never revoked. People earning £122k were paying plenty of tax as things stood before Labour removed the allowance and brought in the additional rate. Yet reversing those decisions would have the majority of lower earners foaming at the mouth.

[jakesmith]

theboss said:

I don't doubt these earners are vastly better off than average - my point is that there's a ratchet effect by which punitive marginal tax rates can be introduced but then never revoked. People earning £122k were paying plenty of tax as things stood before Labour removed the allowance and brought in the additional rate. Yet reversing those decisions would have the majority of lower earners foaming at the mouth.

Low earners many of whom pay no income tax whatsoever

[jakesmith]

theboss said:

I don't doubt these earners are vastly better off than average - my point is that there's a ratchet effect by which punitive marginal tax rates can be introduced but then never revoked. People earning £122k were paying plenty of tax as things stood before Labour removed the allowance and brought in the additional rate. Yet reversing those decisions would have the majority of lower earners foaming at the mouth.

Just to add to this, a household with 2 earners earning £49k each would bring in the same amount as a household with one earner on £120k. Plus they would have the child benefit of another £2k. I agree with Jeremy Corbyn that things aren't fair, in fac fair for me would be to take the entire income tax budget, divide it by the total UK workforce's income, and apply the same percentage to everyone

[ellroy]

VCTs have been mentioned, but minimum 5 years duration to get and keep the tax relief.

EIS can also get the 30% tax relief, but the minimum term is 3 years, so structured exit versions usually kick out at about 3.5 years duration.

Not for the risk averse, but are worthy of consideration for the right person.

[BarryGibb]

isleofthorns said:

I'm surprised this tax grab hasn't had wider press - higher earners seem to accept it without much complaint!

There was a fair bit in the press when the change was introduced many years ago

[BarryGibb]

rotarymazda said:

VCTs are another option (don't do them myself as I've personally seen how the funds are spent)

Spent on what?

[rotarymazda]

BarryGibb said:

Spent on what?

Caviar, expenses and as many fees that the people that ran the VCT and their friends could skim off as quickly as possible.

I was an engineering director at a startup that burnt through $30million. Engineering barely saw $1m of that, the rest of it was siphoned off.

[ellroy]

I'm intrigued as to how that was managed given the maximum size of single company for VCT is £15m and max investment into a single line is £5m?

Edited by ellroy on Friday 25th August 16:03