Is it worth getting paid advice?

[Gannat]

Long-time member but using a different username for this one given the personal details.

I'm in the fortunate position of a decent salary, bonus and pension that means last financial year I had an income of c.£100k and stuck c.£65k into my pension (combined company and personal contributions + bonus grossed up by NI) utilising the remaining allowance from my last 3 financial years.

I've been keeping my income below £100k for a few years in order to avoid the 60% bracket, claim tax free childcare and free hours (1 child pre-school age but will become 2 in the not too distant future) and because I don't really need any more than that to live on so might as well give my pension a bump. I've got an EV on salary sacrifice but I'm now at the point where I've run out of the mainstream channels to keep income under £100k. I've exchanged a couple of emails with a tax adviser who wants £264/hour to assess my situation without telling me how long they might need and whether I might gain any benefit from their advice. Is it worth getting professional advice (as in, are there still things worth doing) or do I just need to cut my losses and start paying 60% tax?

[Andy_290]

Not a huge saving, but salary sacrifice electric bike, if you have a cycle to work scheme in place.

[softtop]

I thought you could pay 100% of your salary into a pension? There's also no cap either so why do you think you have reached a limit?

[Mr Pointy]

softtop said:

I thought you could pay 100% of your salary into a pension? There's also no cap either so why do you think you have reached a limit?

There's an annual limit of £60k.

[supersport]

Give it to charity, you can at least claim back the tax. Having said that now I’m not sure if it has the desired effect.

Once you’ve exhausted pension and salary sacrifice I don’t think there’s anything else left. Beyond earning less.

But of course the cost of the specialist has to be taken against what you might lose.

[MikePRT90]

If you still want to avoid 60% marginal rate and be able to claim Free childcare hours and tax free you can still stick it in pension and pay the tax on contributions over £60k. The tax will be 40% as pension contributions do not reduce your tax free allowance with any tax due can be paid direct from your pension (make sure you claim this in time otherwise it will have to be paid from your net income). Yes you’re still paying tax but better than 60% marginal rate and get to keep your childcare related benefits.

[Gannat]

MikePRT90 said:

If you still want to avoid 60% marginal rate and be able to claim Free childcare hours and tax free you can still stick it in pension and pay the tax on contributions over £60k. The tax will be 40% as pension contributions do not reduce your tax free allowance with any tax due can be paid direct from your pension (make sure you claim this in time otherwise it will have to be paid from your net income). Yes you’re still paying tax but better than 60% marginal rate and get to keep your childcare related benefits.

Thanks for this - I didn't realise this is how it actually works and assumed it would be added back to my income if I did this. Useful to know!

[BenB91]

softtop said:

I thought you could pay 100% of your salary into a pension? There's also no cap either so why do you think you have reached a limit?

As mentioned by someone else, there is a cap on pension contributions and it's £60k p.a..

Most financial advisers offer an initial meeting at no cost. If your potential adviser isn't offering that, find someone that is. It's a great way to find out if you need further advice and if the adviser is a good fit for you.

[bmwmike]

Not sure what the question is exactly but the max pension contribution is 60k pa but don't forget about any unused allowances aka carry over!

[jrb43]

BenB91 said:

softtop said:

I thought you could pay 100% of your salary into a pension? There's also no cap either so why do you think you have reached a limit?

As mentioned by someone else, there is a cap on pension contributions and it's £60k p.a..

Most financial advisers offer an initial meeting at no cost. If your potential adviser isn't offering that, find someone that is. It's a great way to find out if you need further advice and if the adviser is a good fit for you.

My (jaded) experience is that the first "no cost" meeting concludes with them saying you should consider an exaggerated probability of the sky falling in and that you require insurance against that occurrence which they can set up in moments. I'd pay £250 to not be asked to visualise what would happen to my pets if I were to get cancer

Sorry, carry on

[Panamax]

MikePRT90 said:

The tax will be 40% as pension contributions do not reduce your tax free allowance with any tax due can be paid direct from your pension (make sure you claim this in time otherwise it will have to be paid from your net income).

I don't understand that sentence.

Perhaps you could set out a simple worked example with figures to clarify your point.

[cliffords]

Say please

[MikePRT90]

Panamax said:

MikePRT90 said:

The tax will be 40% as pension contributions do not reduce your tax free allowance with any tax due can be paid direct from your pension (make sure you claim this in time otherwise it will have to be paid from your net income).

I don't understand that sentence.

Perhaps you could set out a simple worked example with figures to clarify your point.

The limit for tax relief on pension contributions is £60k pa. As such if you contribute from your gross salary via salary sacrifice £65k then tax (equalling a return of the tax relief gained, assumed to be 40%) will be due on the additional £5k contributed. so a tax bill of £5k x 40% = £2k. This can be paid by noting in a self assessment and paid from net income (so income after tax) or, and this is more preferable, instruct pension company to pay direct from you pension…so no cash flow impact. If paying from pension I believe the pension company need to be advised within 6 months of the end of the tax year.

In the example above as the additional £5k has been paid into your pension it reduces your adjusted net income. This is my understanding and if incorrect (say the £5k over the £60k limit has to be added into a self assessment regardless of how the tax liability is paid) it would be good to know as this is what I am currently planning on doing to ensure I am still entitled to childcare benefits.

[MikePRT90]

Gannat said:

MikePRT90 said:

If you still want to avoid 60% marginal rate and be able to claim Free childcare hours and tax free you can still stick it in pension and pay the tax on contributions over £60k. The tax will be 40% as pension contributions do not reduce your tax free allowance with any tax due can be paid direct from your pension (make sure you claim this in time otherwise it will have to be paid from your net income). Yes you’re still paying tax but better than 60% marginal rate and get to keep your childcare related benefits.

Thanks for this - I didn't realise this is how it actually works and assumed it would be added back to my income if I did this. Useful to know!

Apologies, ignore all of this…after an hour on the phone to HMRC they confirmed that contributions above the allowance count as income and can’t be used to lower adjusted net income!

[Gannat]

MikePRT90 said:

Gannat said:

MikePRT90 said:

If you still want to avoid 60% marginal rate and be able to claim Free childcare hours and tax free you can still stick it in pension and pay the tax on contributions over £60k. The tax will be 40% as pension contributions do not reduce your tax free allowance with any tax due can be paid direct from your pension (make sure you claim this in time otherwise it will have to be paid from your net income). Yes you’re still paying tax but better than 60% marginal rate and get to keep your childcare related benefits.

Thanks for this - I didn't realise this is how it actually works and assumed it would be added back to my income if I did this. Useful to know!

Apologies, ignore all of this…after an hour on the phone to HMRC they confirmed that contributions above the allowance count as income and can’t be used to lower adjusted net income!

Aah, shame, that would have been handy.

[Gannat]

bmwmike said:

Not sure what the question is exactly but the max pension contribution is 60k pa but don't forget about any unused allowances aka carry over!

The question(s): if I've maxed out my pension contributions (and past years' contributions) and I'm still at just under £100k income, is there anything else that I can consider, or that a financial adviser may be able to help me with, in order to shelter income for future years?

[Somebody]

Gannat said:

The question(s): if I've maxed out my pension contributions (and past years' contributions) and I'm still at just under £100k income, is there anything else that I can consider, or that a financial adviser may be able to help me with, in order to shelter income for future years?

Tax relief available on investment in EIS/VCT/SEIS schemes.