Salary sacrifice and personal allowance question

[blueovercream]

Looking for an answer to what might be a fairly basic question. I will try to word this as simply as I can! Hypothetical figures to make the sums easier.

I live in Scotland and I'm in the fortunate but slightly annoying position of being a 45% rate taxpayer. I have now started to lose my personal allowance, meaning that I am in effect taxed at 63% on the chunk of my income above £100k.

If I buy a bike through my employer's bike to work scheme, the Cyclescheme calculator says that I will save 35% on the price of the bike I want. It retails for £3000, so over 12 months at £250pm, I will save £1260 in tax and NI contributions. This bit I understand.

My question: Let's say I earn £110,000. If I spend £3000 on a bike, does this in effect reduce my pre-tax salary to £107,000, and therefore do I pay 63% tax on £107,000, rather than £110,000?

Or worded another way, does my tapered loss of personal allowance apply to a smaller amount of money, and therefore I'm actually saving more than the 35% on the cost of the bike?

Or worded another way again, in working out my potential saving on the cost of the bike, does the Cyclescheme calculator account for tapering of my personal allowance above the £100k threshold?

Clear as mud?

[phpe]

Yes, you are on the right lines

Anything you can do via salary sacrifice/exchange to get your salary below £100k and get your full personal allowance back such as pension contributions, cycle to work, car schemes like Tusker, etc, will all have the effect of pushing down your salary for tax and NI purposes

[ChocolateFrog]

Ideal candidate for a SS car.

[blueovercream]

phpe said:

Yes, you are on the right lines

Anything you can do via salary sacrifice/exchange to get your salary below £100k and get your full personal allowance back such as pension contributions, cycle to work, car schemes like Tusker, etc, will all have the effect of pushing down your salary for tax and NI purposes

Helpful thank you. Note though that I won't be able to buy a bike to take me below £100k, only a bit closer to it. Will this still have an effect?

I hadn't thought about a car but not sure my employer is signed up to such a scheme (I know for sure that they are to Cyclescheme)

[eliot]

dont piss money into bikes or electric cars - dump it it all into your pension - thank me when you retire early

[phpe]

blueovercream said:

phpe said:

Yes, you are on the right lines

Anything you can do via salary sacrifice/exchange to get your salary below £100k and get your full personal allowance back such as pension contributions, cycle to work, car schemes like Tusker, etc, will all have the effect of pushing down your salary for tax and NI purposes

Helpful thank you. Note though that I won't be able to buy a bike to take me below £100k, only a bit closer to it. Will this still have an effect?

I hadn't thought about a car but not sure my employer is signed up to such a scheme (I know for sure that they are to Cyclescheme)

Yes - in your example of salary of £110k, less £3k sacrifice to get you to £107k, your personal allowance is reduced by £1 for every £2 over £100k

So instead of a reduction of £5k (£10k divided by 2) to your personal allowance of £12,570, your allowance would "only" be reduced by £3500 (£7k divided by 2)

Your employer should definitely be investigating doing all pension contributions by salary sacrifice/exchange - it's a no brainer for employees at your pay level and will help the business make considerable National Insurance savings, particularly with Rachel Reeves hike in employer NI rates

https://www.moneyhelper.org.uk/en/pensions-and-ret...

[Jockman]

eliot said:

dont piss money into bikes or electric cars - dump it it all into your pension - thank me when you retire early

I appreciate there is no limit to how much you can put into a pension but there is a limit on the tax relief on contributions set at £60k pa or 100% of salary for personal contributions.

So after that you’ll need to think of something of else that’s tax efficient.

[phpe]

eliot said:

dont piss money into bikes or electric cars - dump it it all into your pension - thank me when you retire early

I don't disagree, but on the basis that life is for living now (and nobody is promised a tomorrow), then being able to pay for something that gives the OP utility/happiness/pleasure from pre-tax salary rather than post-tax salary is a good thing (whilst the tax breaks remain as they are)