Bonus - What to do with it?
Discussion
I'm lucky enough to be awarded a nice bonus this year but as a higher rate tax payer it is rather depressing to see what I will take home. I could of course put part or all of it into my pension and have it tax free (or basic rate taxed) in a few years.
I have savings so have no absolute need for it at present, but I could put it into my ISA or spend some money on the house without impacting my savings.
I assume it is a no brainer to put it all in my pension? What would you do?
I have savings so have no absolute need for it at present, but I could put it into my ISA or spend some money on the house without impacting my savings.
I assume it is a no brainer to put it all in my pension? What would you do?
Being in a similar position re not needing the Bonus now, and with all other savings (rainy day fund etc.) catered for, I would, and did, whack it all into my Pension.
If you're close to retirement, even more so. Take it out upon retirement under a more favourable tax rate and spend it on improving the house then.
S&S ISA is fine, but unless you have in mind a more aggressive (and perhaps riskier, therefore) investment approach to grow the fund within your ISA compared to your Pension, you'll immediately have the considerable challenge of recouping the initial reduction in funds after the higher Tax has first been taken, whereas with the Pension you can ultimately avoid a fair bit of that Tax and still benefit from investment growth, including on the larger gross amount.
If you are eligible for Child Benefit, don't forget taking the Bonus might lose you some, or all, of that entitlement as well, which adds to the Tax burden.
If you're close to retirement, even more so. Take it out upon retirement under a more favourable tax rate and spend it on improving the house then.
S&S ISA is fine, but unless you have in mind a more aggressive (and perhaps riskier, therefore) investment approach to grow the fund within your ISA compared to your Pension, you'll immediately have the considerable challenge of recouping the initial reduction in funds after the higher Tax has first been taken, whereas with the Pension you can ultimately avoid a fair bit of that Tax and still benefit from investment growth, including on the larger gross amount.
If you are eligible for Child Benefit, don't forget taking the Bonus might lose you some, or all, of that entitlement as well, which adds to the Tax burden.
The boring answer is stick it all in the pension as it's a 'no brainer' for higher rate tax payers blah blah blah...that's exactly what I did with mine this year, whole lot went into pension..however depending on the relative size of your bonus maybe you want to put some in pension and take the rest.....spend it on a gift, a watch, coke, hookers or whatever takes your fancy ...though as others have pointed out there will be a tax hit so depends what your re comfortable with.
worsy said:
Thanks all. Am 50 so although not imminent, retirement is not that far away. Hate being sensible but pension it is 
I presume you've already checked on the size of your current pension pot and done various growth projections from now -> retirement date and you have plenty of headroom before you hit the lifetime allowance (which is frozen for the next few years).If not, then you should do that before adding any lump sums into your pension.
omniflow said:
I presume you've already checked on the size of your current pension pot and done various growth projections from now -> retirement date and you have plenty of headroom before you hit the lifetime allowance (which is frozen for the next few years).
If not, then you should do that before adding any lump sums into your pension.
Absolutely the above, triggering lifetime allowance is not to be done lightly.If not, then you should do that before adding any lump sums into your pension.
If turns out lots of headroom from lifetime allowance and (considering what you already put into your pension this year) your bonus would tip the £40k annual allowance, you can use unused annual allowance from the prior 3 years (down to you to record and evidence if HMRC come knocking).
Rick101 said:
Pension is the sensible idea.
I'd probably buy a car.
2nded. Depending on how much I'd bang most of it in the pension, treat the family to a reward for enabling you to earn it in the first place and get a cheap (shed cheap) I'd probably buy a car.
boombang said:
omniflow said:
I presume you've already checked on the size of your current pension pot and done various growth projections from now -> retirement date and you have plenty of headroom before you hit the lifetime allowance (which is frozen for the next few years).
If not, then you should do that before adding any lump sums into your pension.
Absolutely the above, triggering lifetime allowance is not to be done lightly.If not, then you should do that before adding any lump sums into your pension.
If turns out lots of headroom from lifetime allowance and (considering what you already put into your pension this year) your bonus would tip the £40k annual allowance, you can use unused annual allowance from the prior 3 years (down to you to record and evidence if HMRC come knocking).
And yes a car would be the 30 something in me's choice too
boombang said:
Absolutely the above, triggering lifetime allowance is not to be done lightly.
If turns out lots of headroom from lifetime allowance and (considering what you already put into your pension this year) your bonus would tip the £40k annual allowance, you can use unused annual allowance from the prior 3 years (down to you to record and evidence if HMRC come knocking).
Could be less thank £40k though if a high earnerIf turns out lots of headroom from lifetime allowance and (considering what you already put into your pension this year) your bonus would tip the £40k annual allowance, you can use unused annual allowance from the prior 3 years (down to you to record and evidence if HMRC come knocking).
As others have said, watch out for the annual £40k 'allowance' that can be put into a pension tax free. I got massively caught out by it a few years ago.
Other than pension stick it in an ISA - car prices are stupidly high at the moment so invest and wait for the secondhand prices to drop,
Other than pension stick it in an ISA - car prices are stupidly high at the moment so invest and wait for the secondhand prices to drop,
I think unless there's something you obviously want to buy ( ig holiday, Swiss watch, etc) then considering you already have rainy day savings sorted pension is the obvious destination.
After tax my annual bonus always comes to about £7 or £8k and comes very much in handy for paying for a good family holiday.
After tax my annual bonus always comes to about £7 or £8k and comes very much in handy for paying for a good family holiday.
matrignano said:
boombang said:
Absolutely the above, triggering lifetime allowance is not to be done lightly.
If turns out lots of headroom from lifetime allowance and (considering what you already put into your pension this year) your bonus would tip the £40k annual allowance, you can use unused annual allowance from the prior 3 years (down to you to record and evidence if HMRC come knocking).
Could be less thank £40k though if a high earnerIf turns out lots of headroom from lifetime allowance and (considering what you already put into your pension this year) your bonus would tip the £40k annual allowance, you can use unused annual allowance from the prior 3 years (down to you to record and evidence if HMRC come knocking).
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