Ways to reduce taxable gross income (legal and above board!)

[aww999]

Hi everyone, I've done some sums and predict that my taxable gross income will be 2-3k over the 40% threshold for the current tax year. I buy the maximum amount of SIP Shares I'm allowed to buy each month, and increased the salary sacrifice pension to the maximum employer-matched amount.

What other steps can I take to reduce my taxable gross income? I know I can make a lump sum pension contribution, but before I do so, are there any other alternatives? I'm curious as to how the SIP limit is set - is this determined by my employer, or controlled by HMRC? Current limit is £150/month. I've got two young kids, could I make some savings for them out of gross pay rather than net somehow?

Keen to stay within the letter and spirit of the law, and because we are talking modest sums I can't imagine any exotic schemes will be a sensible option for me anyway

Thanks!

[NickCQ]

Best case scenario you will save £600... is it worth the headache?

£3,000 x (40% - 20%)

[bogie]

Just pay it into your pension, thats the simple option

[CarlosFandango11]

Donate to charity.

[williaa68]

You can make pension contributions (what I think you mean by the SIP limit) basically up to your taxable income so making additional pension contributions is probably the easiest way to do this. You don't necessarily need to set up a SIPP though. It may be that your employer may only match fund up to a certain level but you can contribute more than this. If you can and you are comfortable with how these funds are invested it might be the easiest way to achieve your objective.

One of the other posters mentioned charitable contributions. If you employer is a large one you may well find that they match fund charitable contributions as well as pension contributions. When I worked for a big bank they would match fund up to £150 a month. The money went into an account with the charities aid foundation (CAF) and I could write cheques on that account. It was a very effective way of contributing to charity - the equivalent of 60 net to me got 200 for charities that I wanted to support.

[flight147z]

I'm in the same boat, but a little further above the threshold

My two solutions have been

1. Large pension scheme contributions towards the end of the tax year (currently paying in 38% of my gross salary until the end of March)
2. More unpaid leave - I'll take 10 extra days off this calendar year

I'll still pay some tax at 40% but much less than I would have done

[xx99xx]

Childcare vouchers?

[Croutons]

Cycle2Work if you have one, get a new bike pre tax/NI. Payments spread over 12 months though so not massively helpful at this point in the FY.

Out of interest, why does this matter to you?

[aww999]

Thanks all. To clarify, the "SIP shares" I mentioned are buying shares in the group I work for, capped at £150/MTH. I already buy maximum childcare vouchers, so it sounds like pension is the way to go.

It matters to me because I worked a ton of overtime this year and it's galling to think that 40% of those hours were earning money for the government. I don't need the cash immediately so I am happy to park it to maximise tax efficiency, and I am playing catch-up on my pension anyway!

[supercommuter]

I know it is not helpful but why did you do the overtime if you don't want to pay the 40 percent tax. Take the time instead!

[NickCQ]

aww999 said:

It matters to me because I worked a ton of overtime this year and it's galling to think that 40% of those hours were earning money for the government.

I wouldn't worry about it too much.
Where you are in the income distribution you are only barely paying in more than you take out in value of services anyway.

https://www.ons.gov.uk/peoplepopulationandcommunit...

[supercommuter]

Croutons said:

Cycle2Work if you have one, get a new bike pre tax/NI. Payments spread over 12 months though so not massively helpful at this point in the FY.

Out of interest, why does this matter to you?

Haha I do this every year to feel like i am sticking it to the man. Now i just have a garage full of the maximum £1000 pushbikes that I don't use

[louiebaby]

You can transfer part of your partner's tax free allowance to you. It might worth looking in to if he/she earns less.

https://www.gov.uk/apply-marriage-allowance

Would echo the pension, childcare vouchers and cyclescheme already mentioned.

[schmunk]

louiebaby said:

You can transfer part of your partner's tax free allowance to you. It might worth looking in to if he/she earns less.

https://www.gov.uk/apply-marriage-allowance

Would echo the pension, childcare vouchers and cyclescheme already mentioned.

Not if he's in the 40% tax band, though...

"To benefit as a couple, you need to earn less than your partner and have an income of £11,850 or less. Your partner’s income must be between £11,851 and £46,350 (£43,430 in Scotland) for you to be eligible."

[oyster]

OP don't worry about the spirit of the law, it's the letter of it that counts.

A few years back I reduced my taxable income down from just under £100k down to about £12k, using pension contributions.

Received £6k+ back in tax credits as a result which partially offset it.
Also free prescriptions and dentistry!

[schmunk]

oyster said:

OP don't worry about the spirit of the law, it's the letter of it that counts.

A few years back I reduced my taxable income down from just under £100k down to about £12k, using pension contributions.

Received £6k+ back in tax credits as a result which partially offset it.
Also free prescriptions and dentistry!

Presuming you weren't doing this annually, wouldn't it have been better to reduce your income only to the 40% threshold, then make the rest of the contributions the following tax year to gain 40% relief?

[oyster]

schmunk said:

oyster said:

OP don't worry about the spirit of the law, it's the letter of it that counts.

A few years back I reduced my taxable income down from just under £100k down to about £12k, using pension contributions.

Received £6k+ back in tax credits as a result which partially offset it.
Also free prescriptions and dentistry!

Presuming you weren't doing this annually, wouldn't it have been better to reduce your income only to the 40% threshold, then make the rest of the contributions the following tax year to gain 40% relief?

No, here's why.
Relief between earnings of £60k and £100k was 42% - this is 40% tax and 2% eeNICs
Relief between £50k and £60k was 59% - withdrawal of child benefit for 2 children
Relief between approx £42k was £50k was 42% - this is 40% tax and 2% eeNICs
Relief between approx £28k and £42k was 33.4% - 20% tax, 12% eeNICs & 1.4% married tax allowance
Relief between approx £12k and £28k was 73% - 20% tax, 12% eeNICs & 41% withdrawal of tax credits.

Overall level of relief is higher than if contributions only went down to the 40% threshold.

[anonymous-user]

aww999 said:

It matters to me because I worked a ton of overtime this year and it's galling to think that 40% of those hours were earning money for the government.

Equally, if you hadn’t done the overtime you wouldn’t have as much money as you do?

There aren’t many things you can do as an employee other than max out tax friendly savings, pensions, eco friendly house improvements etc.

[gazza5]

Childcare vouchers are a no go now - unless you were on the scheme previously with current employer.

Since october a new scheme has taken childcare vouchers out the loop