Pension - employer tax free limit for my bonus?
Discussion
I have looked for this and the net gives me conflicting answers. I am sure I will need to see a pension advisor but thought I would ask here.
I am due a bonus at Xmas which puts me over the 100k limit. I don’t want to go over it and pay way more tax. I am lucky I don’t desperately need the funds so was considering having it all paid into my pension by my employer.
This way I don’t get taxed and I would rather have more money in there at 47 than a lot less in my hand.
I have read about a 40k limit per year as a employee contribution but this can be pooled three years back minus your deductions but I have only remembered today that I have done this several years ago and my employer paid into it , not me( was 25k) so the limit wasn’t an issue.
This year it’s about 100k bonus so a nice problem to have but would rather have 100k in my pension than 50k in my pocket.
Can they do this amount tax free for me?
I am due a bonus at Xmas which puts me over the 100k limit. I don’t want to go over it and pay way more tax. I am lucky I don’t desperately need the funds so was considering having it all paid into my pension by my employer.
This way I don’t get taxed and I would rather have more money in there at 47 than a lot less in my hand.
I have read about a 40k limit per year as a employee contribution but this can be pooled three years back minus your deductions but I have only remembered today that I have done this several years ago and my employer paid into it , not me( was 25k) so the limit wasn’t an issue.
This year it’s about 100k bonus so a nice problem to have but would rather have 100k in my pension than 50k in my pocket.
Can they do this amount tax free for me?
Think it was 3 years ago, last year they did 10k.
So the 120k limit is for them too, I didn’t know that, that means I will need some calculations done.
I guess I just need to get my p60’s out and do
120k- 19/20, 20/21 and 20/22 total contribution me and employer
And see what’s left? It’s that figure I could pay in, the rest I would have to take cash?
So the 120k limit is for them too, I didn’t know that, that means I will need some calculations done.
I guess I just need to get my p60’s out and do
120k- 19/20, 20/21 and 20/22 total contribution me and employer
And see what’s left? It’s that figure I could pay in, the rest I would have to take cash?
interstellar said:
Think it was 3 years ago, last year they did 10k.
So the 120k limit is for them too, I didn’t know that, that means I will need some calculations done.
I guess I just need to get my p60’s out and do
120k- 19/20, 20/21 and 20/22 total contribution me and employer
And see what’s left? It’s that figure I could pay in, the rest I would have to take cash?
Yes that’s broadly correct. Two further things to think aboutSo the 120k limit is for them too, I didn’t know that, that means I will need some calculations done.
I guess I just need to get my p60’s out and do
120k- 19/20, 20/21 and 20/22 total contribution me and employer
And see what’s left? It’s that figure I could pay in, the rest I would have to take cash?
a) The starting point across the 3 years may not be £120k - it may be lower because of the annual allowance taper. If your total income (incl. the value of employer and employee pension contributions) is >£240k, then your annual allowance is tapered down by £1 for every £2 over £240k. For the tax year 2019/20 instead of £240k it was £150k.
So you need to work out what your allowance was in each year, then deduct what you + your employer put in (and will put in before end of 21/22 tax year), then figure out what’s left.
b) There might be some bizarre rules that prevent you from retrospectively re-classifying income into pension once it’s due to you…I know at a previous employer I worked at you could have your bonus paid into pension, but you had to elect to do this *before* you knew what your bonus was (and in fact you had to decide before the company had decided what to give you). This might have just been the company wanting to be whiter than white, but worth checking.
brickwall said:
Yes that’s broadly correct. Two further things to think about
a) The starting point across the 3 years may not be £120k - it may be lower because of the annual allowance taper. If your total income (incl. the value of employer and employee pension contributions) is >£240k, then your annual allowance is tapered down by £1 for every £2 over £240k. For the tax year 2019/20 instead of £240k it was £150k.
So you need to work out what your allowance was in each year, then deduct what you + your employer put in (and will put in before end of 21/22 tax year), then figure out what’s left.
b) There might be some bizarre rules that prevent you from retrospectively re-classifying income into pension once it’s due to you…I know at a previous employer I worked at you could have your bonus paid into pension, but you had to elect to do this *before* you knew what your bonus was (and in fact you had to decide before the company had decided what to give you). This might have just been the company wanting to be whiter than white, but worth checking.
Thanks a) The starting point across the 3 years may not be £120k - it may be lower because of the annual allowance taper. If your total income (incl. the value of employer and employee pension contributions) is >£240k, then your annual allowance is tapered down by £1 for every £2 over £240k. For the tax year 2019/20 instead of £240k it was £150k.
So you need to work out what your allowance was in each year, then deduct what you + your employer put in (and will put in before end of 21/22 tax year), then figure out what’s left.
b) There might be some bizarre rules that prevent you from retrospectively re-classifying income into pension once it’s due to you…I know at a previous employer I worked at you could have your bonus paid into pension, but you had to elect to do this *before* you knew what your bonus was (and in fact you had to decide before the company had decided what to give you). This might have just been the company wanting to be whiter than white, but worth checking.
A) have never exceeded £240k. This is the closest I will ever get I think.
B) my bonus is performance based so I can see on any day throughout the year what my bonus is at year end so not sure how that could be frowned upon.
Hope that makes sense.
I think the rest of it and my calculations make sense.
Would love to hear any other views on this , thanks so far.
interstellar said:
brickwall said:
Yes that’s broadly correct. Two further things to think about
a) The starting point across the 3 years may not be £120k - it may be lower because of the annual allowance taper. If your total income (incl. the value of employer and employee pension contributions) is >£240k, then your annual allowance is tapered down by £1 for every £2 over £240k. For the tax year 2019/20 instead of £240k it was £150k.
So you need to work out what your allowance was in each year, then deduct what you + your employer put in (and will put in before end of 21/22 tax year), then figure out what’s left.
b) There might be some bizarre rules that prevent you from retrospectively re-classifying income into pension once it’s due to you…I know at a previous employer I worked at you could have your bonus paid into pension, but you had to elect to do this *before* you knew what your bonus was (and in fact you had to decide before the company had decided what to give you). This might have just been the company wanting to be whiter than white, but worth checking.
Thanks a) The starting point across the 3 years may not be £120k - it may be lower because of the annual allowance taper. If your total income (incl. the value of employer and employee pension contributions) is >£240k, then your annual allowance is tapered down by £1 for every £2 over £240k. For the tax year 2019/20 instead of £240k it was £150k.
So you need to work out what your allowance was in each year, then deduct what you + your employer put in (and will put in before end of 21/22 tax year), then figure out what’s left.
b) There might be some bizarre rules that prevent you from retrospectively re-classifying income into pension once it’s due to you…I know at a previous employer I worked at you could have your bonus paid into pension, but you had to elect to do this *before* you knew what your bonus was (and in fact you had to decide before the company had decided what to give you). This might have just been the company wanting to be whiter than white, but worth checking.
A) have never exceeded £240k. This is the closest I will ever get I think.
B) my bonus is performance based so I can see on any day throughout the year what my bonus is at year end so not sure how that could be frowned upon.
Hope that makes sense.
I think the rest of it and my calculations make sense.
Would love to hear any other views on this , thanks so far.
interstellar said:
I have looked for this and the net gives me conflicting answers. I am sure I will need to see a pension advisor but thought I would ask here.
I am due a bonus at Xmas which puts me over the 100k limit. I don’t want to go over it and pay way more tax. I am lucky I don’t desperately need the funds so was considering having it all paid into my pension by my employer.
This way I don’t get taxed and I would rather have more money in there at 47 than a lot less in my hand.
I have read about a 40k limit per year as a employee contribution but this can be pooled three years back minus your deductions but I have only remembered today that I have done this several years ago and my employer paid into it , not me( was 25k) so the limit wasn’t an issue.
This year it’s about 100k bonus so a nice problem to have but would rather have 100k in my pension than 50k in my pocket.
Can they do this amount tax free for me?
Total contributions count towards the Annual Allowance - i.e. both those paid by you and those paid by your employer.I am due a bonus at Xmas which puts me over the 100k limit. I don’t want to go over it and pay way more tax. I am lucky I don’t desperately need the funds so was considering having it all paid into my pension by my employer.
This way I don’t get taxed and I would rather have more money in there at 47 than a lot less in my hand.
I have read about a 40k limit per year as a employee contribution but this can be pooled three years back minus your deductions but I have only remembered today that I have done this several years ago and my employer paid into it , not me( was 25k) so the limit wasn’t an issue.
This year it’s about 100k bonus so a nice problem to have but would rather have 100k in my pension than 50k in my pocket.
Can they do this amount tax free for me?
interstellar said:
Thanks
A) have never exceeded £240k. This is the closest I will ever get I think.
B) my bonus is performance based so I can see on any day throughout the year what my bonus is at year end so not sure how that could be frowned upon.
Hope that makes sense.
I think the rest of it and my calculations make sense.
Would love to hear any other views on this , thanks so far.
Re B, this is to do with whether you “salary sacrifice” the bonus or not.A) have never exceeded £240k. This is the closest I will ever get I think.
B) my bonus is performance based so I can see on any day throughout the year what my bonus is at year end so not sure how that could be frowned upon.
Hope that makes sense.
I think the rest of it and my calculations make sense.
Would love to hear any other views on this , thanks so far.
If you pay it as an employee contribution you save income tax; if your employer pays the contribution direct to your pension pot (“salary sacrifice”) then you save income tax and NI and your employer saves NI. So salary sacrifice is definitely preferable, not least because employers will often share their NI saving with you to further increase the contribution.
It’s known as salary sacrifice because you have given up the right to receive the salary, albeit your employer agrees to pay it into your pension pot instead.
There certainly used to be some rules around having to give up the right to the salary before being entitled to receive it - I used to have to give some convoluted instructions to payroll on how much of my unknown bonus to sacrifice. I think the rules might have been relaxed somewhat now (I’m over the LTA so am no longer trying to manage my tax this way) but I suspect many employers still require it to make sure they don’t fall foul of the rules.
ok so I have checked my payslips now I am home and the 25k was in 18/19 so its not relevant. I thought the pension info was on your P60 but its not so I have learnt something today.
My contribution are as follows (mine and employer)
19/20 9988.19
20/21 13226.36
21/22 8329.25*(I have added the next five months into this for employee and employer to take me to April 1 2022)
Total - £31543.80
so therefore I should in theory be able to push up to £88456.20 of my bonus to my pension (£120,000- £31543.80).
Apart from the question above about NET deductions am I correct so far?
My contribution are as follows (mine and employer)
19/20 9988.19
20/21 13226.36
21/22 8329.25*(I have added the next five months into this for employee and employer to take me to April 1 2022)
Total - £31543.80
so therefore I should in theory be able to push up to £88456.20 of my bonus to my pension (£120,000- £31543.80).
Apart from the question above about NET deductions am I correct so far?
The contribution into the pension is the amount that you and your employer have paid into the pension during the year. Generally pension contributions are deducted before tax so are already effectively grossed up. So this total, plus the 'extra' contribution you are looking at is the total contribution over the three years.
Your employer also needs to be able to do bonus sacrifice. You need to make a non-reversible agreement to pay your bonus to the pension and it must be done before you receive the bonus.
Your employer also needs to be able to do bonus sacrifice. You need to make a non-reversible agreement to pay your bonus to the pension and it must be done before you receive the bonus.
interstellar said:
ok so I have checked my payslips now I am home and the 25k was in 18/19 so its not relevant. I thought the pension info was on your P60 but its not so I have learnt something today.
My contribution are as follows (mine and employer)
19/20 9988.19
20/21 13226.36
21/22 8329.25*(I have added the next five months into this for employee and employer to take me to April 1 2022)
Total - £31543.80
so therefore I should in theory be able to push up to £88456.20 of my bonus to my pension (£120,000- £31543.80).
Apart from the question above about NET deductions am I correct so far?
You can put all of your pension into your bonus, but you will only get pensions tax relief on the 88K if you do. If you put 100K in, you will need to pay your marginal rate of income tax on the 100K - 88K = 12K (via your Self Assessment tax return).My contribution are as follows (mine and employer)
19/20 9988.19
20/21 13226.36
21/22 8329.25*(I have added the next five months into this for employee and employer to take me to April 1 2022)
Total - £31543.80
so therefore I should in theory be able to push up to £88456.20 of my bonus to my pension (£120,000- £31543.80).
Apart from the question above about NET deductions am I correct so far?
CharlesElliott said:
Generally pension contributions are deducted before tax so are already effectively grossed up. So this total, plus the 'extra' contribution you are looking at is the total contribution over the three years.
Your employer also needs to be able to do bonus sacrifice. You need to make a non-reversible agreement to pay your bonus to the pension and it must be done before you receive the bonus.
Sorry I don't follow your first sentence. so is my payslip net and that's the figures I use correct? I think I have done it right.Your employer also needs to be able to do bonus sacrifice. You need to make a non-reversible agreement to pay your bonus to the pension and it must be done before you receive the bonus.
Yes three years ago I had to send an email in advance saying I was giving it up etc
CharlesElliott said:
You can put all of your pension into your bonus, but you will only get pensions tax relief on the 88K if you do. If you put 100K in, you will need to pay your marginal rate of income tax on the 100K - 88K = 12K (via your Self Assessment tax return).
ok thats new info thanks. so if I dont need any of the cash and I am normally a 40% tax payer ,would I pay less tax than 40% if I put the extra 12k into my pension?I am just looking for the best way to pay the least tax and get the most into my pension/pocket.
You can carryover unused relief from the last three tax years so you have £15k of 18/19 left.
See the example
https://www.which.co.uk/money/pensions-and-retirem...
See the example
https://www.which.co.uk/money/pensions-and-retirem...
interstellar said:
CharlesElliott said:
You can put all of your pension into your bonus, but you will only get pensions tax relief on the 88K if you do. If you put 100K in, you will need to pay your marginal rate of income tax on the 100K - 88K = 12K (via your Self Assessment tax return).
ok thats new info thanks. so if I dont need any of the cash and I am normally a 40% tax payer ,would I pay less tax than 40% if I put the extra 12k into my pension?I am just looking for the best way to pay the least tax and get the most into my pension/pocket.
a) As above, you may have more than £88k allowance ‘spare’ if you have unused allowance from 18/19
b) However per my earlier posts, you should confirm that your allowance in each of the previous tax years was £40k, and no tapering applied.
brickwall said:
Two points
a) As above, you may have more than £88k allowance ‘spare’ if you have unused allowance from 18/19
b) However per my earlier posts, you should confirm that your allowance in each of the previous tax years was £40k, and no tapering applied.
a) yes I have allowance spare from 18 as mine and employer contribution was £34257.50 so 5.5k spare. Salary was £100000 exactly.a) As above, you may have more than £88k allowance ‘spare’ if you have unused allowance from 18/19
b) However per my earlier posts, you should confirm that your allowance in each of the previous tax years was £40k, and no tapering applied.
b)no tapering needed I don't believe. most I have earned is £120k in 2017 so never hit the threshold
This changes things doesn't it as now what the last two posters are saying is its the previous 3 years that count 18/19, 19/20 and 20/21 and not 21/22?
If that's the case than I have 62 k max I can put in tax free not 85k?
Can anyone tell me if I pay over this will I still have more money (even on paper) by putting in my pension than taking the cash and getting taxed at 40%. That bit still isn't clear.
The bonus will be around 100k so what should I do?
interstellar said:
brickwall said:
Two points
a) As above, you may have more than £88k allowance ‘spare’ if you have unused allowance from 18/19
b) However per my earlier posts, you should confirm that your allowance in each of the previous tax years was £40k, and no tapering applied.
a) yes I have allowance spare from 18 as mine and employer contribution was £34257.50 so 5.5k spare. Salary was £100000 exactly.a) As above, you may have more than £88k allowance ‘spare’ if you have unused allowance from 18/19
b) However per my earlier posts, you should confirm that your allowance in each of the previous tax years was £40k, and no tapering applied.
b)no tapering needed I don't believe. most I have earned is £120k in 2017 so never hit the threshold
This changes things doesn't it as now what the last two posters are saying is its the previous 3 years that count 18/19, 19/20 and 20/21 and not 21/22?
If that's the case than I have 62 k max I can put in tax free not 85k?
Can anyone tell me if I pay over this will I still have more money (even on paper) by putting in my pension than taking the cash and getting taxed at 40%. That bit still isn't clear.
The bonus will be around 100k so what should I do?
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