fallen in to the 60% tax trap

[sawman]

I had a vague awareness of the tax issues over 100k and have been hovering about the dreaded number for a couple of years.

I have just projecrted my income for 23/24 and I expect to be 10k into the trap. With eldest now out of uni and earning, I had been hoping to knock some chunks off the mortgage this year, but it seems by tax bill is going up by 6k instead!

whats the most sensible mitigation?

I think I can buy more pension via my employer

I can get a salary sacrifice car via work scheme. ( i could do with a new daily as it happens)

Some form of private pension / SIPP - I am a bit clueless with investment stuff - doesnt really interest me so I get bored reading about it

Any easy to follow tips?

[Muzzer79]

Put it into pension.

If pension is already maxed, consider salary sacrifice.

I did a bit of both but depends on your priorities.

And don’t make it sound like such a burden - you’re in the top 3% of earners in the country, plenty would be pleased to have your problem…..

[sawman]

Yeah, it a nice position to be in, not easily won.

i am not sure exactly how increasing my pension works (nhs) my current contribution is fixed to payband

[Muzzer79]

sawman said:

Yeah, it a nice position to be in, not easily won.

i am not sure exactly how increasing my pension works (nhs) my current contribution is fixed to payband

Their contribution will be fixed but you always have the option to increase how much you put into a pension - if not through the NHS scheme then through a private scheme of your own.

[Pheo]

Muzzer79 said:

Put it into pension.

If pension is already maxed, consider salary sacrifice.

I did a bit of both but depends on your priorities.

And don’t make it sound like such a burden - you’re in the top 3% of earners in the country, plenty would be pleased to have your problem…..

Depends where you live though. 100k in parts of the south east isn’t likely uncomfortable, but it’s nowhere near as comfortable as your head might imagine it to be!

As an aside, why is the tax system completely unable to cope with this? OP watch out you likely need to do a self assessment tax return. Every year they don’t PAYE me enough and I have a big chunk to find by 31st Jan. don’t understand why they can’t figure it out.

[ukwill]

Pheo said:

Muzzer79 said:

Put it into pension.

If pension is already maxed, consider salary sacrifice.

I did a bit of both but depends on your priorities.

And don’t make it sound like such a burden - you’re in the top 3% of earners in the country, plenty would be pleased to have your problem…..

Depends where you live though. 100k in parts of the south east isn’t likely uncomfortable, but it’s nowhere near as comfortable as your head might imagine it to be!

As an aside, why is the tax system completely unable to cope with this? OP watch out you likely need to do a self assessment tax return. Every year they don’t PAYE me enough and I have a big chunk to find by 31st Jan. don’t understand why they can’t figure it out.

Phone hmrc and change your tax code to something more suitable, then you won’t have to worry in Jan.

Op - if you’re not maxing your pension then that’s your answer. Remember, you can carry forward unused allowances from the last 3yrs.

[bmwmike]

Also it's 60k this year isn't it...

[craigjm]

Pheo said:

As an aside, why is the tax system completely unable to cope with this? OP watch out you likely need to do a self assessment tax return. Every year they don’t PAYE me enough and I have a big chunk to find by 31st Jan. don’t understand why they can’t figure it out.

Changes were announced in April that you only have to do a tax return now if you earn over 150k.

Edited by craigjm on Wednesday 27th September 00:32

[Pheo]

ukwill said:

Phone hmrc and change your tax code to something more suitable, then you won’t have to worry in Jan.

Op - if you’re not maxing your pension then that’s your answer. Remember, you can carry forward unused allowances from the last 3yrs.

I did not know I could tell them to do that, I will give it a go.

[cml24]

Regarding one of the suggestions, car via salary sacrifice, I don't believe this is possible.

I thought the figure used to calculate loss in personal allowance is 'adjusted net income' which is gross income minus pension contribution. No other salary sacrifice counts.

Can anyone confirm that to the OP (and me as I'd like a new car on salary sacrifice too!).

[zedx19]

CheesecakeRunner said:

The first question to ask is “do you need/want more cash now?”

If you do, then just take the tax hit. Yes, it’s galling and there are ways to mitigate it, but if you actually need a bit more cash in the bank at the end of the month, then just live with it.

I agree with this, I fell into the bracket a few years back, upped my pension at first but then cost of living hit and I just take the hit now.

Again, it's a nice position to be in but when friends/family are saying the government should tax the top earners more its hard to remain silent. The way tax works is the more you earn the more you pay and many people are completely unaware of the 60% trap.

[Uncle boshy]

craigjm said:

Pheo said:

As an aside, why is the tax system completely unable to cope with this? OP watch out you likely need to do a self assessment tax return. Every year they don’t PAYE me enough and I have a big chunk to find by 31st Jan. don’t understand why they can’t figure it out.

Changes were announced in April that you only have to do a tax return now if you earn over 150k.

Edited by craigjm on Wednesday 27th September 00:32

Which is true but assumes you are proactive on your tax code to get it right. With bonus I end up in this zone, but the exact amount year to year varies depending on company performance. I try and be slightly conservative with the tax code to avoid having to find cash at the end of the year, which normally means they owe me.But as the tax code is dynamic in this tax zone whereas it’s static either side, It’s a bit of a guess, hence I’ll do one anyway.

You can argue the rights and wrongs of the percentage applied, but it’s an odd mechanism to collect tax for a £25k income band

[Klegal]

The 60% tax trap is an absolute scandal and needs to be abolished forthwith. £100k is a pretty low salary and to pay a lower marginal rate at higher earnings (>£125k) is utterly regressive. Another nulab relic thanks to Alastair Darling…

[zedx19]

Klegal said:

The 60% tax trap is an absolute scandal and needs to be abolished forthwith. £100k is a pretty low salary and to pay a lower marginal rate at higher earnings (>£125k) is utterly regressive. Another nulab relic thanks to Alastair Darling…

But it doesn't win votes as the vast majority will see it as looking after the wealthy, as you say it should have increased now considering it was introduced in 2009!!

[Glosphil]

Klegal said:

The 60% tax trap is an absolute scandal and needs to be abolished forthwith. £100k is a pretty low salary and to pay a lower marginal rate at higher earnings (>£125k) is utterly regressive. Another nulab relic thanks to Alastair Darling…

£100k is a pretty low salary!!! Earned by 3% of the population. How do people on the average salary (approx £35k?) not starve living on the streets? As for those earning minimum wage?

The 60% tax is not a "trap" - it's not hidden.

[craigjm]

zedx19 said:

Klegal said:

The 60% tax trap is an absolute scandal and needs to be abolished forthwith. £100k is a pretty low salary and to pay a lower marginal rate at higher earnings (>£125k) is utterly regressive. Another nulab relic thanks to Alastair Darling…

But it doesn't win votes as the vast majority will see it as looking after the wealthy, as you say it should have increased now considering it was introduced in 2009!!

Agreed. It should be at 125k now really.

[The Leaper]

craigjm said:

Changes were announced in April that you only have to do a tax return now if you earn over 150k.

Edited by craigjm on Wednesday 27th September 00:32

I wish that applied to me! My total income is nowhere near £150,000, I do not have anything complex in my tax affairs, yet HMRC insist I complete a SA form every year.

R.

[Muzzer79]

Pheo said:

Muzzer79 said:

Put it into pension.

If pension is already maxed, consider salary sacrifice.

I did a bit of both but depends on your priorities.

And don’t make it sound like such a burden - you’re in the top 3% of earners in the country, plenty would be pleased to have your problem…..

Depends where you live though. 100k in parts of the south east isn’t likely uncomfortable, but it’s nowhere near as comfortable as your head might imagine it to be!

The median wage in this country is £33,000.

Regardless of whether it's 'comfortable' or not, let's not pretend that over 3 times that isn't doing pretty well and that tax problems by association are not completely 1st world problems.

BTW - I have a similar 'problem' to the OP and I live in the south east so my head has a pretty clear picture of how comfortable it is compared to those on a more normal wage.

[Mazinbrum]

craigjm said:

zedx19 said:

Klegal said:

The 60% tax trap is an absolute scandal and needs to be abolished forthwith. £100k is a pretty low salary and to pay a lower marginal rate at higher earnings (>£125k) is utterly regressive. Another nulab relic thanks to Alastair Darling…

But it doesn't win votes as the vast majority will see it as looking after the wealthy, as you say it should have increased now considering it was introduced in 2009!!

Agreed. It should be at 125k now really.

Just browsing trying to find the 20% tax band should be raised thread, then again this is PH so don't suppose there is one!

[craigjm]

Mazinbrum said:

craigjm said:

zedx19 said:

Klegal said:

The 60% tax trap is an absolute scandal and needs to be abolished forthwith. £100k is a pretty low salary and to pay a lower marginal rate at higher earnings (>£125k) is utterly regressive. Another nulab relic thanks to Alastair Darling…

But it doesn't win votes as the vast majority will see it as looking after the wealthy, as you say it should have increased now considering it was introduced in 2009!!

Agreed. It should be at 125k now really.

Just browsing trying to find the 20% tax band should be raised thread, then again this is PH so don't suppose there is one!

I actually think all tax bands should be reviewed regularly to keep them sensible based on inflation etc.