60% tax question

[Pondering123]

I've created a new username for the post as it contains financial information I'd rather not have linked to my normal profile.

There has/is much discussion about the 60% effective rate between 100k-125k where you lose your personal allowance - my question is relating to this. I have an offer of a job that pays a basic salary right at the top (just over) the 125k mark (I think 128k or something as there are work from home allowances etc) - said job also has goals attached to it so total salary all targets/goals being met is about 240k, obviously this could be higher or lower to an extent.

Am I right in thinking the best thing to do is it to get the basic salary down to under 100k by putting into pension at least getting maximum value from my contribution, and then let the bonuses take the hit as I go through the 60% zone and out the other side? Or is there something else I should be considering here?

Thanks for any thoughts.

[sociopath]

I'd have thought that with that sort of money, the best thing to do would be to employ an accountant to answer your questions, and not ask random PHers, then again I've never been near that sort of final figure.
Congratulations though

[supersport]

It's always good to max out your pension contributions if you can afford too, and are happy to have the money locked away.

If it's all PAYE at the levels you are talking you can't avoid that bit of tax, and you will be nicely into the 45% bracket too, also means no tax free interest for you. At the top end you may even be in for a little bit of pension tapering too, so something to watch out for.

If you have unused previous years allowance, then there is a good avenue to potentially get you under the 100K for a few years, depending on how successful you are of course.

[AdamIM]

You can also go back 3 years and claim unused allowances, (40X 3 less your contributions). Perhaps look at with the performance elements of your package.

[Pondering123]

Thanks.

I guess I just thought because pension tends to be done all on basic salaries by the employer (i.e. for anything more I'd need to do this myself as a manual contribution?) that it was most simple at least to get the 60% upside on that money and then see what happened with the rest. But yes perhaps I need to be thinking about this as an overall thing (including pension taper if things go ok).

Advice probably not a bad idea, I don't want someone to flog me funds, rather just advise and tell me what is best to do/sort my tax returns - is this just simply a tax advisor/accountant?

[supersport]

anonymous said:

[redacted]

[AdamIM]

Pondering123 said:

Thanks.



Advice probably not a bad idea, I don't want someone to flog me funds, rather just advise and tell me what is best to do/sort my tax returns - is this just simply a tax advisor/accountant?

Yes. Find a good tax accountant to advise and complete your(and wife's if rel) returns.

[supersport]

Pondering123 said:

Thanks.

I guess I just thought because pension tends to be done all on basic salaries by the employer (i.e. for anything more I'd need to do this myself as a manual contribution?) that it was most simple at least to get the 60% upside on that money and then see what happened with the rest. But yes perhaps I need to be thinking about this as an overall thing (including pension taper if things go ok).

Advice probably not a bad idea, I don't want someone to flog me funds, rather just advise and tell me what is best to do/sort my tax returns - is this just simply a tax advisor/accountant?

It will depend on how they operate, but I would imagine you will get to say how much of your basic gets into your pension, just up the %. It's bound to be salary sacrifice which will be nice.

There's also nothing to stop you opening your own pension which may actually be better, but making sure you keep any matched contribution, you're going to be doing a self assessment anyway, so will need to claim back the extra relief via that.

See the IM stickies at the top of the section, lots of good stuff in there.

[98elise]

anonymous said:

[redacted]

This. The tax man doesn't care if it's basic pay or a bonus. It's income that gets taxed.

[plenty]

Pondering123 said:

Advice probably not a bad idea, I don't want someone to flog me funds, rather just advise and tell me what is best to do/sort my tax returns - is this just simply a tax advisor/accountant?

Accountants help you sort your tax returns and advise on tax-efficient strategies. IFAs flog you funds. By law, it is not possible to do both jobs although there can be some overlap on the advice part.

[GR_TVR]

Another thing worth mentioning is that the 40k yearly pension allowance also includes anything that your employer pays into your pension.
So if your employer pays in 20k then you can only sacrifice 20k of your salary tax free (short term there might be an option to increase this by using up previous years' unused allowances).

[Pondering123]

GR_TVR said:

Another thing worth mentioning is that the 40k yearly pension allowance also includes anything that your employer pays into your pension.
So if your employer pays in 20k then you can only sacrifice 20k of your salary tax free (short term there might be an option to increase this by using up previous years' unused allowances).

They pay 7%, so nothing earth shattering, about 9k p/a from employer based on the numbers here.

The other issue is that assuming 5 or 6% growth on even circa 30k p/a into pension from current position then there would be a huge chance of breaching the LTA given I'll probably work another 20 years (till 55) - projection on those numbers gives a pot of about 1.5m by 55. Though I suppose there are options to lever down as and when that looks likely, or retire earlier.

Thanks to the posters above. Will have a look around for someone in that field, unless anyone reading has any recommendations, I'm SE based though I suppose that doesn't matter as most things can be done virtually.

[z4RRSchris]

if its just PAYE, which it sounds like it is, just bang as much as you like into pension, C2W, lekky car scheme etc as youll get a nice fat tax saving.

nothing much else you can do sadly at that level. Once you get back into 45% it gets to be a big old sum you need to burn on the above to get to 100k, so at that point id rather the monthly take home.

[bunchofkeys]

OP i'm being nosey, but if you don't mind me asking, what job role will you be doing to command a salary like that and how old are you?

[Jawls]

Pondering123 said:

I've created a new username for the post as it contains financial information I'd rather not have linked to my normal profile.

There has/is much discussion about the 60% effective rate between 100k-125k where you lose your personal allowance - my question is relating to this. I have an offer of a job that pays a basic salary right at the top (just over) the 125k mark (I think 128k or something as there are work from home allowances etc) - said job also has goals attached to it so total salary all targets/goals being met is about 240k, obviously this could be higher or lower to an extent.

Am I right in thinking the best thing to do is it to get the basic salary down to under 100k by putting into pension at least getting maximum value from my contribution, and then let the bonuses take the hit as I go through the 60% zone and out the other side? Or is there something else I should be considering here?

Thanks for any thoughts.

Essentially, yes. But if 240k is remotely realistic you will be so far over what can be contributed to a pension (even if you use previous years allowances) that realistically you’re going to have to bend over and take it from the taxman.

At that level of income, you might also be interested in VCTs but frankly you need to speak to professional if 240k is remotely realistic.

Or just accept you’re gonna get taxed and spunk the rest on cars!

Note, the 40k a year limit applies to total contributions inc tax relief and employers contributions.

[supersport]

I would also vote for spunking it on cars, at that level you can do both.

[anonymous-user]

It's not as much money as you might think.

Those who have earned well into 6 figures will hopefully echo this. You earn more, you spend more, you then save more, you then earn more, you then have spare money and quite a chunk. You realise there's more to life and Jack your job in.

Op. See an accountant.

Seis and VCTs are available. They have risk.

[cavey76]

Sit down on a quiet wet Sunday and read the following and do some math

https://www.gov.uk/guidance/pension-schemes-work-o...

I think of myself as not being entirely dim yet still took me half a dozen go's to get net, threshold and adjusted income straight in my head. Also expect a minging K tax code which can vary up and down like the proverbials knickers.

Like another poster comments take full benefit of leccy car scheme and anything else with a salary sacrifice element. Surprisingly, in a similar place my, employer doesn't YET have sal sacrifice pension in place so i have been haranguing the HR team to get it sorted.

Similar here, IT sales with a wheen of years experience behind me. The horrible early years where i thought i was getting sacked every time a deal bombed are luckily a distant memory for me. I am no public school boy with the right tie. I did/do work hard but often comment to my missus that i was in the right place at the right time on more than one occassion. Enjoy your good fortune but don't take it for granted.

Good luck.

[cavey76]

anonymous said:

[redacted]

Yeah IT sales are often these sorts of ratio's

So enterprise sales, ie the guys who land a deal for Company A selling to Company B often 50/50 or 55/45 with basic salaries over 100K achievable.

Indirect sales, ie you work for Company A and you sell/coach Company B to sell to Company C typically the ratio is slightly less 60/40, so higher basic but you dont get quite so much glory when Company B sells on your behalf. I was in the former in my younger days...now in the latter.

In the last few years SaaS or recurring revenue software companies pay significant %ages in "comp" ie the performance related element because signing a customer up to x licenses a month at $y is HUGELY valuable to the companies long term revenue. Whereas in a previous generation the software would have been sold as a one off model. The consumer example might be Microsoft Office, remember back in the day it was £100 or £200 one off. Well now its Office365 and costs £10/month. The latter model is MUCH more valuable to Microsoft. Once a company is using a SaaS product all things being equal that product is often damn sticky and the selling company can count on many many years of uninterrupted revenue.

On top of that the sellers will often get regular stock in the form of Restricted Stock Units or RSUs that once they hit maturation phase become another quarterly income stream. I have some younger extended family members who mid 20s didnt quite know what to do with themselves. I have coached them into sales. It can be a very rewarding career.

[z4RRSchris]

VCT Eis seis all a bit of a ball ache if you want an easier life on paye,

at 240k just max your lekky car, c2w, and pension and forget about the rest, you’ll get taxed loads but suck it up and enjoy the cheap tesla.