Can I be clever with a bonus?

[Sporky]

Hello all. Turns out that I am very likely indeed to be getting a "management bonus" around February next year; before tax it's probably on the order of £15-20k. I don't need any toys, I don't have any debt, and general cashflow is fine. I'd like, within the confines of the law, to give as little of it to HMRC as possible.

If the company lets me, is it best to dump the lot into pension?

If they don't, should I fill up an ISA?

Apologies in advance that I have probably left out a lot of critical information.

[wrencho]

I've been in a similar boat. If you don't "need" the leftovers once HMRC have been through it I would lump it into a pension if possible (being careful not to breach personal allowance limits).

I've been in the tricky (in the powerfully built PH sense) position of having to self assess due to bonus and by the time PAYE and the overpayment is made there's very little left so I've been topping my pension up...

[Mr Pointy]

If your company will agree salary sacrifice into a pension is usually the most tax efficient route.

[Sporky]

Thank you. I'm nowhere near the personal allowance for paying into my pension (which I should probably address separately) so I'll see if they're amenable to such.

[Simpo Two]

Sporky said:

If they don't, should I fill up an ISA?

You'd have to receive the money before you could invest it in an ISA. The 'tax-free' aspect of an ISA is after you invest, not before.

[bmwmike]

+1 to salary sacrifice if possible as it means you dont pay NI on that part either, and you get the full tax relief at source, so see the full amount immediately in your pension pot.

At the start of each tax year i drop my salary according to the bonus i think i might get, and then adjust it through the year. We get 3 times per year we can adjust the sacrifice portion, so having learned the hard way to anticipate the next 12 months taxable pay (thanks HMRC) i now adjust up and down as needed.

[Sporky]

Ah. Yes. Excellent point.

I'm honestly quite good at my job, and not the simpleton I probably appear!

[wrencho]

bmwmike said:

At the start of each tax year i drop my salary according to the bonus i think i might get, and then adjust it through the year. We get 3 times per year we can adjust the sacrifice portion, so having learned the hard way to anticipate the next 12 months taxable pay (thanks HMRC) i now adjust up and down as needed.

This is the major first world problem I haven't solved for myself yet! We can only make those changes once a year at our place.

[bmwmike]

wrencho said:

bmwmike said:

At the start of each tax year i drop my salary according to the bonus i think i might get, and then adjust it through the year. We get 3 times per year we can adjust the sacrifice portion, so having learned the hard way to anticipate the next 12 months taxable pay (thanks HMRC) i now adjust up and down as needed.

This is the major first world problem I haven't solved for myself yet! We can only make those changes once a year at our place.

Yeah we are only supposed to do it once per year according to HR but the system lets us do it whenever the benefit window is open. Every time i do it, i sign a new contract for 12 months, but as i say, we can adjust 3x per year. Bit of a mess but suits me haha.