Bonus Sacrifice
Discussion
I was having a discussion with a mate of mine who was complaining about the tax he is due to pay on an upcoming bonus and wanted to check my thinking on the subject was correct. I have pointed him in the direction of a professional FA and he is going to meet with him, so this is for my sanity and it may also come in handy for others on the forum.
His position as follows:
Salary £105k
Bonus £10k
Early 30's
No other income
He currently makes no contribution to his pension. His employer 10%.
I have said to him that by contributing 5% to his pension he will profit from the deal by retaining the proportion of his annual tax free allowance lost by earning over 100k, thus paying less tax on both his take home and the full amount being sent to his pension (plus whatever benefit he gets when he comes to take the pension).
I then suggested that he may want to ask his employer to sacrifice his bonus into his pension. This will avoid him paying an effective 60% rate on the 10k over 100k and save him national insurance. By taking the bonus in his take home pay he will only see c. 4k of it, whereas his pension pot will see the full 10k.
I've made it clear it's down to him, based upon being informed by his professional advice, on what is best for him and the risks, etc etc etc....
I think I am right - thoughts from the floor?
His position as follows:
Salary £105k
Bonus £10k
Early 30's
No other income
He currently makes no contribution to his pension. His employer 10%.
I have said to him that by contributing 5% to his pension he will profit from the deal by retaining the proportion of his annual tax free allowance lost by earning over 100k, thus paying less tax on both his take home and the full amount being sent to his pension (plus whatever benefit he gets when he comes to take the pension).
I then suggested that he may want to ask his employer to sacrifice his bonus into his pension. This will avoid him paying an effective 60% rate on the 10k over 100k and save him national insurance. By taking the bonus in his take home pay he will only see c. 4k of it, whereas his pension pot will see the full 10k.
I've made it clear it's down to him, based upon being informed by his professional advice, on what is best for him and the risks, etc etc etc....
I think I am right - thoughts from the floor?
As above, I've been doing just that and am glad I did
Smart move putting money in a pension scheme anytime......just one clarification, you don't pay tax on it going in untouched, but you do when you take it out, the benefit being that you might pay tax at a lower marginal rate than if you would taking it as salary
Smart move putting money in a pension scheme anytime......just one clarification, you don't pay tax on it going in untouched, but you do when you take it out, the benefit being that you might pay tax at a lower marginal rate than if you would taking it as salary
In a word, yes.
The other consideration is that your friend is above the threshold income for the tapered annual allowance calculation and not too far from the £150,000 threshold at which pension annual allowance starts to be reduced.
If he expects his salary to increase in the near future then it may be prudent to use up the full £40k annual allowances whilst it remains available to him. It can be backdated with some caveats.
A further consideration along those lines is that higher rate tax relief on pensions has been under political threat for quite a few years now. It may not exist for ever.
If his employer does contribution via salary sacrifice then it may be slightly more efficient (for NI) to contribute from full months salary, rather than spreading it over the year.
The other consideration is that your friend is above the threshold income for the tapered annual allowance calculation and not too far from the £150,000 threshold at which pension annual allowance starts to be reduced.
If he expects his salary to increase in the near future then it may be prudent to use up the full £40k annual allowances whilst it remains available to him. It can be backdated with some caveats.
A further consideration along those lines is that higher rate tax relief on pensions has been under political threat for quite a few years now. It may not exist for ever.
If his employer does contribution via salary sacrifice then it may be slightly more efficient (for NI) to contribute from full months salary, rather than spreading it over the year.
bmwmike said:
Got a er friend in the same boat. He might have cocked up contributions last year and accidentally grossed 102k after contributions.
Is there a way to pay into pension for last tax year to lower the gross?
How can anyone in the top, what, 2% of earners 'cock-up' something as simple as their earnings and taxes?Is there a way to pay into pension for last tax year to lower the gross?
oyster said:
How can anyone in the top, what, 2% of earners 'cock-up' something as simple as their earnings and taxes?
Really? I assume you're an expert on everything then from rocket science to brain surgery.For those of us lesser mortals who are not experts on everything, and don't spend all day looking at every single line of tax code, and perhaps being PAYE don't have much need for professional advice it's perhaps understandable to make the odd error?
I know of one Director at a Private Bank, so works in the industry, who screwed up his pension contributions a year or two ago, overpaid after not accounting for some other payments. Its easily done.
Cheers guys, glad to know I've not given him a bum steer. I think he can tailor his pension contribution to get him below the dreaded £101,001.00 so I'll point that out as well.
I know what you mean about FA's not added much value, but he has some other bits that he wants to look at so does need something more than a mate down the pub (who may or may not have consumed a few pints at the time! ahem) helping him with his life's financial planning!
Am I right in thinking he needs to do a Self Assessment?
I know what you mean about FA's not added much value, but he has some other bits that he wants to look at so does need something more than a mate down the pub (who may or may not have consumed a few pints at the time! ahem) helping him with his life's financial planning!
Am I right in thinking he needs to do a Self Assessment?
ellroy said:
oyster said:
How can anyone in the top, what, 2% of earners 'cock-up' something as simple as their earnings and taxes?
Really? I assume you're an expert on everything then from rocket science to brain surgery.For those of us lesser mortals who are not experts on everything, and don't spend all day looking at every single line of tax code, and perhaps being PAYE don't have much need for professional advice it's perhaps understandable to make the odd error?
I know of one Director at a Private Bank, so works in the industry, who screwed up his pension contributions a year or two ago, overpaid after not accounting for some other payments. Its easily done.
Why is handling money seemingly so hard for people, and more to the point why is it treated almost like a point of endearment?
oyster said:
ellroy said:
oyster said:
How can anyone in the top, what, 2% of earners 'cock-up' something as simple as their earnings and taxes?
Really? I assume you're an expert on everything then from rocket science to brain surgery.For those of us lesser mortals who are not experts on everything, and don't spend all day looking at every single line of tax code, and perhaps being PAYE don't have much need for professional advice it's perhaps understandable to make the odd error?
I know of one Director at a Private Bank, so works in the industry, who screwed up his pension contributions a year or two ago, overpaid after not accounting for some other payments. Its easily done.
Why is handling money seemingly so hard for people, and more to the point why is it treated almost like a point of endearment?
It largely means that i get to spend my time else where, like brain surgery and rocket engineering, rather than dealing with clunky HMRC.
Bump on this one here. (Not the OP but a similar situation so didn’t create a new thread)
Similar position here. I’ve been offered the bonus sacrifice and in addition the employer will match what I sacrifice - allowing me the potential the double my bonus in that respect.
Would it be best to do this?
Similar position here. I’ve been offered the bonus sacrifice and in addition the employer will match what I sacrifice - allowing me the potential the double my bonus in that respect.
Would it be best to do this?
Edited by giggity on Tuesday 16th November 21:43
giggity said:
Bump on this one here.
Similar position here. I’ve been offered the bonus sacrifice and in addition the employer will match what I sacrifice - allowing me the potential the double my bonus in that respect.
Would it be best to do this?
No. The country is in a financial hole so paying as much tax as you can is the right thing to do. Plus it's not fair on your employer to make them double your bonus if you can avoid it.Similar position here. I’ve been offered the bonus sacrifice and in addition the employer will match what I sacrifice - allowing me the potential the double my bonus in that respect.
Would it be best to do this?
ps. I am not an IFA
TwigtheWonderkid said:
No. The country is in a financial hole so paying as much tax as you can is the right thing to do. Plus it's not fair on your employer to make them double your bonus if you can avoid it.
ps. I am not an IFA
LOL, then let’s start with big tech and corporations paying their way.ps. I am not an IFA
Edited by giggity on Tuesday 16th November 14:50
oyster said:
Rocket engineering and brain surgery are complex subjects requiring years of training. Understanding your tax code requires a small degree of concentration and maybe some middle-school level maths. I spend perhaps 10 minutes every few months checking - it's easy.
Why is handling money seemingly so hard for people, and more to the point why is it treated almost like a point of endearment?
To try and answer that, my wife and I simply aren’t interested enough. We both find finances incredibly dull and regularly make mistakes/attract penalties and so on.Why is handling money seemingly so hard for people, and more to the point why is it treated almost like a point of endearment?
We are in exactly the same position as the OP’s pal and went past the threshold without noticing (both of us ffs!) and got a lovely retrospective tax bill. Not complaining as entirely our fault and something we acknowledge we’re s
t at. Just don’t have the time/inclination to get better!Great shout about the pension thing OP. Coming up to Xmas bonus time and that sounds a great shout.
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