New job and entering the £100k+ tax minefield
Discussion
I have landed a new role and with the salary, benefits, bonus and another income source my gross income will be around £146k. This is a foreign world to me and I would genuinely appreciate any help.
I understand that I completely lose my tax free allowance, by entering into this bracket, but having never earned above £100K before, my question is how do I exploit the pension salary sacrifice to soften the tax blow?
Is it as simple as me paying blah % of my salary so it is equal to the £40k limit, or is there more to it?
Yours confused!
I understand that I completely lose my tax free allowance, by entering into this bracket, but having never earned above £100K before, my question is how do I exploit the pension salary sacrifice to soften the tax blow?
Is it as simple as me paying blah % of my salary so it is equal to the £40k limit, or is there more to it?
Yours confused!
The nasty bit happens 100 to 125 odd thousand. £1 personal allowance for every two pounds earned over 100. Pension sacrifice (and other salary sacrifice wheezes) mean your salary is counted as the sum after the sacrifices. If you want to put max pension, go ahead, if that makes budgeting sense.
Congrats on a good uplift
Congrats on a good uplift
£40K is the annual allowance for pensions isn't it? Although you can do the carry-back for three years previous I think? so in theory you could drop your income out of the 100K band entirely.
Salary sacrifice pensions are exactly that - you agree to "give up" say £20K of salary, so your £146K salary becomes a £126K salary. The employer puts that £20K into your pension pot instead. The decent ones do so along with the NI saved. Regular pensions are (probably) more complicated as you would have to claim the tax back on your tax return, but the sums would be essentially the same - take your pensions contributions off your gross income to find your taxable income.
Worth asking if they do salary sacrifice cars, flexible benefits (buy holidays) etc.
Amazing uplift - congratulations.
Salary sacrifice pensions are exactly that - you agree to "give up" say £20K of salary, so your £146K salary becomes a £126K salary. The employer puts that £20K into your pension pot instead. The decent ones do so along with the NI saved. Regular pensions are (probably) more complicated as you would have to claim the tax back on your tax return, but the sums would be essentially the same - take your pensions contributions off your gross income to find your taxable income.
Worth asking if they do salary sacrifice cars, flexible benefits (buy holidays) etc.
Amazing uplift - congratulations.
As above - the real bad zone is 100-125k which is know as the 60% band as you effectively lose 60% of your income to tax. To properly benefit you'd need to try to keep your overall income at 100k.
If you can afford to, then adding to whatever pension contributions your employer makes would be an excellent start - ideally via salary sacrifice and up to 40k total.
As above though - you can go back 3 years with pension payments - so if you contributed say 10k last year, you can add a further 30k this year. So you should be able to keep under 100k assuming you want to.
Also ask your employer whether they have any other benefits that can be funded through salary sacrifice.
If you can afford to, then adding to whatever pension contributions your employer makes would be an excellent start - ideally via salary sacrifice and up to 40k total.
As above though - you can go back 3 years with pension payments - so if you contributed say 10k last year, you can add a further 30k this year. So you should be able to keep under 100k assuming you want to.
Also ask your employer whether they have any other benefits that can be funded through salary sacrifice.
My wife has now been told due to tapering that she can only put £10k a year into her pension now tax free.
Her work are giving her the difference I believe as a cash monthly payment so she doesn’t lose any benefit if that makes sense??
I’m not sure how this stuff works as I thought it was £40k a year as well.
Any ideas and sorry for the hijack!
Her work are giving her the difference I believe as a cash monthly payment so she doesn’t lose any benefit if that makes sense??
I’m not sure how this stuff works as I thought it was £40k a year as well.
Any ideas and sorry for the hijack!
You don't have to worry about tapering until you are comfortably over 200k
https://www.moneyhelper.org.uk/en/pensions-and-ret...
https://www.moneyhelper.org.uk/en/pensions-and-ret...
Salary sacrifice is generally a good plan. However, you need to remember that salary sacrifice means exactly that. So, using the example above, if salary is £146,000, there will likely be salary related benefits based on that amount. If you salary sacrifice £40,000 and have a salary of £106,000, salary related benefits will be based on £106,000. This will affect, say, salary related life cover, redundancy pay calculations, and the like.
R.
R.
Over 312k and she's be tapered down to 4k which is the minimum.
A nice problem to have - but true high earners really need to be saving for pensions in ISA's and other instruments. The 'benefit' is that when you come to spend it, that's all tax free / tax already paid - unlike a regular pension on which you'll pay income tax.
A nice problem to have - but true high earners really need to be saving for pensions in ISA's and other instruments. The 'benefit' is that when you come to spend it, that's all tax free / tax already paid - unlike a regular pension on which you'll pay income tax.
The Leaper said:
If you salary sacrifice £40,000 and have a salary of £106,000, salary related benefits will be based on £106,000. This will affect, say, salary related life cover, redundancy pay calculations, and the like.
I made exactly this point a few months ago on a thread about a salary sacrifice scheme for cars, and was told I was talking rubbish, and that death in service benefits, multiples for mortgage borrowings and the like were unaffected. I said they absolutely were at my former employer, and was that was very unusual. Seems i might have been right after all. TwigtheWonderkid said:
I made exactly this point a few months ago on a thread about a salary sacrifice scheme for cars, and was told I was talking rubbish, and that death in service benefits, multiples for mortgage borrowings and the like were unaffected. I said they absolutely were at my former employer, and was that was very unusual. Seems i might have been right after all.
It can vary depending on how your employer has worded it in the employment contracts and how they implement sacrifice - some employers base such things on the pre-sacrifice "notional/reference salary" which means the multiples are unaffected, and some base it on the sacrificed salary, meaning the lower figure is then used for death in service etcI assume like me you will be PAYE?
Expect your tax code to jump about for a short while. Expect to owe hmrc some tax next year, maybe the year after. It should then work itself out.
A couple of things to mention:
Pension contributions - this is valuable because of the tax relief. Lots of free money. It can be a tool to bring your tax down and effect your take home pay. lots of online calculators, I find them confusing, so check with your home insurance, you might have legal cover included and look at the definition, tax advice is likely to be one of them.
Venture capital trusts - Now this is an investment with 30% tax relief. You need to have paid the tax to claim it back, so every 10k is worth 13k to you. You need the cash to invest and the VCT to be open, but you could (there is risk) invest each year into a VCT and lower your tax bill by the 30% tax relief. There are limits and you cannot withdraw for 5 years without being taxed.
Salary sacrifce - there are lots of things that could be included here. It does have impacts at both ends, good and bad. But depending on how open your employer is to adding things in, you might be amazed at what yo can sacrifice salary for.
EIS investments - more risky than VCT's - tax relief- 30% I think.
Well done on the jump up. Once you have been there for 12 months + you will find you have cash left over in droves. The initial period you might find you spend.
oh, watch out for credit cards and loans - put your details in the wrong place and you will be inundated with people trying to loan you money.
Expect your tax code to jump about for a short while. Expect to owe hmrc some tax next year, maybe the year after. It should then work itself out.
A couple of things to mention:
Pension contributions - this is valuable because of the tax relief. Lots of free money. It can be a tool to bring your tax down and effect your take home pay. lots of online calculators, I find them confusing, so check with your home insurance, you might have legal cover included and look at the definition, tax advice is likely to be one of them.
Venture capital trusts - Now this is an investment with 30% tax relief. You need to have paid the tax to claim it back, so every 10k is worth 13k to you. You need the cash to invest and the VCT to be open, but you could (there is risk) invest each year into a VCT and lower your tax bill by the 30% tax relief. There are limits and you cannot withdraw for 5 years without being taxed.
Salary sacrifce - there are lots of things that could be included here. It does have impacts at both ends, good and bad. But depending on how open your employer is to adding things in, you might be amazed at what yo can sacrifice salary for.
EIS investments - more risky than VCT's - tax relief- 30% I think.
Well done on the jump up. Once you have been there for 12 months + you will find you have cash left over in droves. The initial period you might find you spend.
oh, watch out for credit cards and loans - put your details in the wrong place and you will be inundated with people trying to loan you money.
- Edit to amend the EIS figures.
Edited by anonymous-user on Thursday 28th April 08:56
Carbon Sasquatch said:
Over 312k and she's be tapered down to 4k which is the minimum.
A nice problem to have - but true high earners really need to be saving for pensions in ISA's and other instruments. The 'benefit' is that when you come to spend it, that's all tax free / tax already paid - unlike a regular pension on which you'll pay income tax.
Other instruments ? After an ISA and pension are filled what other tax shielding options are available? Asking for a friend. A nice problem to have - but true high earners really need to be saving for pensions in ISA's and other instruments. The 'benefit' is that when you come to spend it, that's all tax free / tax already paid - unlike a regular pension on which you'll pay income tax.
Spidersleg said:
Other instruments ? After an ISA and pension are filled what other tax shielding options are available? Asking for a friend.
I didn't claim tax shielding 
Although for a few years, you'll be fine with a GIA and managing the holdings to realise gains annually and stay under the CGT limit.
Depending on marital status - max out pensions & ISA's for your spouse too.
After that you may well have kids & excess cash for saving will be a distant memory
Also don't forget the pension LTA - if you put too much in and it grows well, then you'll get clobbered at the other end....
As Mr Spoon said ,maybe consider either VCT or EIS investment ( 30% up front tax relief available on both ) and also tax relief potential on other CGT gains too.
Hold for 5 years and no CGT tax payable but also then could recycle ( sell and buy again ( different companies ) which will offset income tax.
Hold for 5 years and no CGT tax payable but also then could recycle ( sell and buy again ( different companies ) which will offset income tax.
alscar said:
As Mr Spoon said ,maybe consider either VCT or EIS investment ( 30% up front tax relief available on both ) and also tax relief potential on other CGT gains too.
Hold for 5 years and no CGT tax payable but also then could recycle ( sell and buy again ( different companies ) which will offset income tax.
https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-investorsHold for 5 years and no CGT tax payable but also then could recycle ( sell and buy again ( different companies ) which will offset income tax.
You've got a million a year to spend. Fill your boots.
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