Maxed out pension via salary sacrifice. What next?

[Ethera]

I am trying to keep my taxable income to below £100k so that I do not lose the annual £12k tax free allowance.

Maximising my pension contribution every year to £40k via salary sacrifice has helped slightly but I will now still earn over £100k (I have used up all my previous 3 year £40k allowances).

Would the next best approach be to partake in an employee share scheme where I buy shares in my company at a discount, using salary sacrifice? Indeed can this we done via salary sacrifice. Would this approach mean no capital gains tax after 5 yrs?

Are there any other salary sacrifice routes?

[TheAardvark]

Do you lease a vehicle? If so, there are salary sacrifice schemes for eletric vehicles that are more tax efficient I believe...

[Caddyshack]

It is a gradual loss of the 12k allowance, not total loss if you go to 100.001

Example I found:

I earn £100,000 and get a £1000 pay rise
The extra £1,000 is taxed at my normal 40% Higher Rate
But for every £2 I earn over £100,000, I also lose £1 of my tax-free Personal Allowance
At this 2:1 rate, I lose £500 of my Personal Allowance
This now also needs to be taxed at my 40% Higher Rate
40% of £500 is an extra £200 tax
I am now taxed £600 (£400 + £200) on the extra £1000 I earn
£600 is 60% of the extra £1000 I earn

[Carbon Sasquatch]

As above - it's informally known as the 60% band and its gradual - but still annoying.

If you work for a company, try asking your HR / benefits departments what other options they have / support for salary sacrifice.

[Jawls]

Not an explicit answer to the question, but if you’re maxing your pension you’re clearly saving shed loads.

Don’t let the tax tail wag the dog. Accept you’ll pay 60% effective rate on a portion of income, and spend the residual money on a great holiday for the kids etc.

[spence1886]

I have been avoiding the "60%" income tax band for a few years now and am running out of pension rollover so interested in this. Since you are maxing your pension I'd tend to agree that at some point just accept that you are only able to get £38 for every £100 earnt, but you are getting it, and either spend or save it and forget about it. If you intend to save (and have maxed your ISA) then could you look at VCTs for their posisble tax advantages?

[JulietRomeo]

For those with young one, exceeding 100k also reduces childcare hours from 30-> 16, as well as no longer being eligible for the childcare allowance worth upto £2k when contributing £8k.

[CarDoodle]

Do you max your ISA contributions as well? I am assuming so, but if not a Lifetime ISA might be worth a look - a 25% “top up” so would take a bit of the sting out of it. Various limitations with it of course.

[okgo]

brickwall said:

Is Ride2Work an option?

I like your thinking.

Is it now the case also that most places have removed the cap of 1k?

[shambolic]

This thread has brought up a conversation with my missus.
I asked her about pension and salary sacrifice but she said she can only put £10k a year in due to “tapering”.
Is this correct and is there other ways to maximise paying less tax?
Apparently she overpaid a couple of years ago and had to spread out allowance over 3 years to prevent being taxed horrendously.
I don’t really understand much about it tbh.

[Carbon Sasquatch]

shambolic said:

This thread has brought up a conversation with my missus.
I asked her about pension and salary sacrifice but she said she can only put £10k a year in due to “tapering”.
Is this correct and is there other ways to maximise paying less tax?
Apparently she overpaid a couple of years ago and had to spread out allowance over 3 years to prevent being taxed horrendously.
I don’t really understand much about it tbh.

That would imply that she's earning rather a lot.

The tapering rules also changed a couple of years ago so worth re-checking.

If she's currently capped at 10k then she must be earning c300k

https://www.youinvest.co.uk/sites/default/files/AJ...

If she's applying the old rules, then maybe she can go to 40k this financial year & last - the threshold used to be around 150k & increased to 200k

[Carbon Sasquatch]

An article on the changes to tapering from 2020
https://www.tilney.co.uk/news/tapered-pension-annu...

[coetzeeh]

Ethera said:

I am trying to keep my taxable income to below £100k so that I do not lose the annual £12k tax free allowance.

Maximising my pension contribution every year to £40k via salary sacrifice has helped slightly but I will now still earn over £100k (I have used up all my previous 3 year £40k allowances).

Would the next best approach be to partake in an employee share scheme where I buy shares in my company at a discount, using salary sacrifice? Indeed can this we done via salary sacrifice. Would this approach mean no capital gains tax after 5 yrs?

Are there any other salary sacrifice routes?

Can you take e.g. bonus as LTIP/equity and defer that way?

[2 GKC]

coetzeeh said:

Can you take e.g. bonus as LTIP/equity and defer that way?

That seems pretty unlikely and most LTIPs are subject to income tax any way

[2 GKC]

Ethera said:

I am trying to keep my taxable income to below £100k so that I do not lose the annual £12k tax free allowance.

Maximising my pension contribution every year to £40k via salary sacrifice has helped slightly but I will now still earn over £100k (I have used up all my previous 3 year £40k allowances).

Would the next best approach be to partake in an employee share scheme where I buy shares in my company at a discount, using salary sacrifice? Indeed can this we done via salary sacrifice. Would this approach mean no capital gains tax after 5 yrs?

Are there any other salary sacrifice routes?

Tax treatment depends on the nature of the scheme but if you’ve got excess cash you’d be mad not to participate in it whatever it is

[coetzeeh]

2 GKC said:

coetzeeh said:

Can you take e.g. bonus as LTIP/equity and defer that way?

That seems pretty unlikely and most LTIPs are subject to income tax any way

Agreed, but it may defer the tax obligation into the future when the LTIP matures.

[shambolic]

Carbon Sasquatch said:

shambolic said:

This thread has brought up a conversation with my missus.
I asked her about pension and salary sacrifice but she said she can only put £10k a year in due to “tapering”.
Is this correct and is there other ways to maximise paying less tax?
Apparently she overpaid a couple of years ago and had to spread out allowance over 3 years to prevent being taxed horrendously.
I don’t really understand much about it tbh.

That would imply that she's earning rather a lot.

The tapering rules also changed a couple of years ago so worth re-checking.

If she's currently capped at 10k then she must be earning c300k

https://www.youinvest.co.uk/sites/default/files/AJ...

If she's applying the old rules, then maybe she can go to 40k this financial year & last - the threshold used to be around 150k & increased to 200k

She’s over £200k with bonus etc. She paid over the £40k one year I believe by accident then had to reduce the next 2 years to balance out.
I don’t really take much heed of her earnings. But the opening post brought to mind this issue. We really need to speak to a proper IFA to look at investment and tax reductions where possible. Just not got round to it. She was in poor health last year (cancer), but all ok now.
Thanks for your reply it’s all above my pay grade tbh.

[shambolic]

Carbon Sasquatch said:

An article on the changes to tapering from 2020
https://www.tilney.co.uk/news/tapered-pension-annu...

Thanks I’ll pass it on. There’s something else about her employer contribution tipping her over some other allowance but she’s getting some money instead of contributions or something.
I really need to pay more attention and ask her.
Our critical illness also paid out last year so I don’t know if that comes into calculations as well.
As long as I’ve £10 in my pocket for a few beers I’m happy

[shambolic]

She also has several LTips matured and maturing from last few years to factor in.
We really need to take proper financial advice on it. We have no dependants to leave anything to either so it is really just about retiring and having a good life until we both die.

[Carbon Sasquatch]

shambolic said:

Thanks I’ll pass it on. There’s something else about her employer contribution tipping her over some other allowance but she’s getting some money instead of contributions or something.
I really need to pay more attention and ask her.
Our critical illness also paid out last year so I don’t know if that comes into calculations as well.
As long as I’ve £10 in my pocket for a few beers I’m happy

A few companies haven't caught up with the new tapering rules - and still think its 10k so any entitlement you have over that is paid as an allowance, which is then basically taxable income.

She needs to be clear on what her actual current (and prior year) contribution limit actually is - then decide whether to contribute up to that limit or not.