Bringing salary below £100k
Discussion
Hi all
I’m in a fortunate position to likely be earning in the £170-£220k range for the next few year, the amount varying depending on bonuses and RSU payouts.
We now are excited to have a little one on the way, and there is further incentive to be below £100k for childcare, as well as the tax benefits.
My plan is to pay as much into my pension as possible through my company scheme, as well as a salary sacrifice car, which will likely leave a balance approaching year end that I will put into a SIPP to keep me below £100k. Any flaws to that strategy?
I will likely need to pay over £60k/year into my pension. How do I leverage previously unused pension allowance? And once the three years are exhausted can I just pay in more and pay the tax? This should be relatively small and on balance still worth it.
Any advice appreciated, or pointing in the right direction of somewhere that may be able to help.
Thank you!
I’m in a fortunate position to likely be earning in the £170-£220k range for the next few year, the amount varying depending on bonuses and RSU payouts.
We now are excited to have a little one on the way, and there is further incentive to be below £100k for childcare, as well as the tax benefits.
My plan is to pay as much into my pension as possible through my company scheme, as well as a salary sacrifice car, which will likely leave a balance approaching year end that I will put into a SIPP to keep me below £100k. Any flaws to that strategy?
I will likely need to pay over £60k/year into my pension. How do I leverage previously unused pension allowance? And once the three years are exhausted can I just pay in more and pay the tax? This should be relatively small and on balance still worth it.
Any advice appreciated, or pointing in the right direction of somewhere that may be able to help.
Thank you!
What i did was go back and track what i'd paid into my pension each tax year for the previous 3 tax years, and calc the difference between that and the year's allowance. Save the spreadsheet so you can keep using it going forwards.
Then i simply paid in what i needed to over the £60k in the current tax year. Then on my current year tax return, (in the box asking for more information ) I stated that any payments over and above the £60k were using up previous allowance.
Keep tracking your payments in the spreadsheet each year, making sure to use the oldest tax year gap first.
After all the allowances have been used up, yes you can pay in over the £60k. But as you say, you'll have to pay tax on it. (I've also had to do for a small amount where my calcs of what my employer's contributions were was wrong!) I don't know about the impact to tax free child care, but I presume if your pension is salary sacrificed then as long as you're below £100k it won't be impacted by you subsequently being taxed on the excess pension contributions.
Then i simply paid in what i needed to over the £60k in the current tax year. Then on my current year tax return, (in the box asking for more information ) I stated that any payments over and above the £60k were using up previous allowance.
Keep tracking your payments in the spreadsheet each year, making sure to use the oldest tax year gap first.
After all the allowances have been used up, yes you can pay in over the £60k. But as you say, you'll have to pay tax on it. (I've also had to do for a small amount where my calcs of what my employer's contributions were was wrong!) I don't know about the impact to tax free child care, but I presume if your pension is salary sacrificed then as long as you're below £100k it won't be impacted by you subsequently being taxed on the excess pension contributions.
matt21 said:
I'm in a fortunate position to likely be earning in the £170-£220k range for the next few year, the amount varying depending on bonuses and RSU payouts.
We now are excited to have a little one on the way, and there is further incentive to be below £100k for childcare, as well as the tax benefits.
Not a prayer. Just suck up the tax cost. Sure, you can suppress it a bit with some pension contributions but you're still gonna be Rachel Reeves' new best friend.We now are excited to have a little one on the way, and there is further incentive to be below £100k for childcare, as well as the tax benefits.
Blue_star said:
Cutting you salary by half to save tax is insane.
You worked hard and deserve to have a nice lifestyle; I am assuming you are saving enough as it is.
High salaries are in almost all cases only possible in countries that are well set up and this comes at a cost.
It isn’t insane at all. It’s totally sane. I’m sure his pension like almost everyone in private sector could use the extra funds and he saves a wedge of childcare. What’s not to like. You worked hard and deserve to have a nice lifestyle; I am assuming you are saving enough as it is.
High salaries are in almost all cases only possible in countries that are well set up and this comes at a cost.
OP you can also consider buying a tax free bike/car and one new creative idea I’ve heard of is people taking unpaid time off even.
You don’t say how much is in your pension at the moment but stuffing £100k in there for a couple of years could be the best thing you do. Psychologically it’s addictive watching it get to the point where it makes more in interest in a year than you actually contributed.
That being said, with that amount of income you’ve blasted so far through the £100k tax traps that it might be worth just enjoying the money and sucking up what you’d lose in childcare and the loss of the tax free allowance.
Great place to be. Well done!
That being said, with that amount of income you’ve blasted so far through the £100k tax traps that it might be worth just enjoying the money and sucking up what you’d lose in childcare and the loss of the tax free allowance.
Great place to be. Well done!
Thanks for the feedback. Honestly, reducing my salary to £100k will have no negative bearing on my life style, it just means less cash is saved. I would do it as a 4-5 year plan, sacrifice some savings but put my pension in a very strong position, which I can then pull pack on contributions if needed.
Also I appreciate the free childcare isn’t a full 30hrs every week (it’s 38wks), but I estimate it is worth about £7k/year.
It sounds like the plan would work, just need to find a good SIPP.
Also I appreciate the free childcare isn’t a full 30hrs every week (it’s 38wks), but I estimate it is worth about £7k/year.
It sounds like the plan would work, just need to find a good SIPP.
In that position I’d max the pension to the previous allowances as suggested, focus on the work schemes first as it also saves NI (which a SIPP won’t).
If your employer offers a cycle to work schemes, ensure you take a new bike each year and ask for an unlimited budget (or a high one) and buy a bike for each of the family at nearly 50% reduction over RRP by taking from your pre-tax and pre-NI wage.
Ask if there are any good EV’s on the car scheme (I’m less clear on the latest perks for tax savings here).
Look at any charity donations you can make locally as there will be tax efficient ways of helping if you’re so inclined.
Once you are left with the taxable portion coming in, fill up yours (and your families if possible) ISA’s. You won’t avoid the tax earning the money to put in but between a couple you can put £40K a year away with subsequent interest earned tax free (that will soon add up!)
If you’ve anything after that (the above can soon burn through a lot of money I expect!) the highest interest account you can find and possibly share trading or physical gold.
These don’t avoid tax either (other than some forms of gold) but might make back some of the tax paid if chosen well.
If you buy gold sovereigns they are capital tax gains free if you make anything on them for example (price is currently on the way up).
At this level I’d also be inclined to speak to a financial advisor to ensure you are claiming every allowance in your return your’re entitled to….
If your employer offers a cycle to work schemes, ensure you take a new bike each year and ask for an unlimited budget (or a high one) and buy a bike for each of the family at nearly 50% reduction over RRP by taking from your pre-tax and pre-NI wage.
Ask if there are any good EV’s on the car scheme (I’m less clear on the latest perks for tax savings here).
Look at any charity donations you can make locally as there will be tax efficient ways of helping if you’re so inclined.
Once you are left with the taxable portion coming in, fill up yours (and your families if possible) ISA’s. You won’t avoid the tax earning the money to put in but between a couple you can put £40K a year away with subsequent interest earned tax free (that will soon add up!)
If you’ve anything after that (the above can soon burn through a lot of money I expect!) the highest interest account you can find and possibly share trading or physical gold.
These don’t avoid tax either (other than some forms of gold) but might make back some of the tax paid if chosen well.
If you buy gold sovereigns they are capital tax gains free if you make anything on them for example (price is currently on the way up).
At this level I’d also be inclined to speak to a financial advisor to ensure you are claiming every allowance in your return your’re entitled to….
AyBee said:
Does paying tax in the SIPP still reduce net adjusted income?
I've done my own spreadsheet for this stuff, and whilst it gave me a couple of years (maxing pension, previous allowances and salsac car), I didn't think there was anything else I could do.
It does indeed.I've done my own spreadsheet for this stuff, and whilst it gave me a couple of years (maxing pension, previous allowances and salsac car), I didn't think there was anything else I could do.
@OP - may also be worth discussing with your employer if there's any scope to delaying some of the payments and then getting a big bump in 5 years time.
Thanks again everyone.
If I paid for example £70k (I guess including employee contribution) into my pension how would the taxman know £10k was from a previous year? And could I pay for example £40k from 3yrs ago so I don’t lose that year and £40k from the current year so I have some headroom still in 3yrs time?
I think having some professional advice is a good idea! Does anyone recommend any company that specialises in this?
Cheers!
If I paid for example £70k (I guess including employee contribution) into my pension how would the taxman know £10k was from a previous year? And could I pay for example £40k from 3yrs ago so I don’t lose that year and £40k from the current year so I have some headroom still in 3yrs time?
I think having some professional advice is a good idea! Does anyone recommend any company that specialises in this?
Cheers!
okgo said:
Blue_star said:
Cutting you salary by half to save tax is insane.
You worked hard and deserve to have a nice lifestyle; I am assuming you are saving enough as it is.
High salaries are in almost all cases only possible in countries that are well set up and this comes at a cost.
It isn t insane at all. It s totally sane. I m sure his pension like almost everyone in private sector could use the extra funds and he saves a wedge of childcare. What s not to like. You worked hard and deserve to have a nice lifestyle; I am assuming you are saving enough as it is.
High salaries are in almost all cases only possible in countries that are well set up and this comes at a cost.
OP you can also consider buying a tax free bike/car and one new creative idea I ve heard of is people taking unpaid time off even.
Yes you can give 30 or 40k a year of it to Porsche but that seems just as mad to me.
ChocolateFrog said:
Not insane but trying to make £120k (and I assume counting) a year disappear does seem a little bit mad.
Yes you can give 30 or 40k a year of it to Porsche but that seems just as mad to me.
It makes good sense to do it. For reasons I said. Most people s pension provision is behind where it needs to be, and he d save a bundle in childcare in the process. Literally win win. Yes you can give 30 or 40k a year of it to Porsche but that seems just as mad to me.
You have to remember that you get nearly 2:1 into pension at this level assuming sal sac. The difference of throwing a lot into your pension and nothing makes very little odds to to your take home at this level. Especially considering childcare and 60% tax zone too. I’d also say that when you can live so comfortably within your means like OP, a few k here or there extra in your pocket means nothing, you already resisted the lifestyle bloat to get to that position.
Edited by okgo on Thursday 2nd October 14:03
ChocolateFrog said:
Not insane but trying to make £120k (and I assume counting) a year disappear does seem a little bit mad.
Yes you can give 30 or 40k a year of it to Porsche but that seems just as mad to me.
I agree it can be extreme however if the pension needs a top up then it makes more sense to do it now and contribute less in the future. Say the OP's salary is £170k and they salary sacrifice into pension using previous allowances to reduce their salary to £118,000.Yes you can give 30 or 40k a year of it to Porsche but that seems just as mad to me.
With respect to your Porsche comment the £100k cliff edge makes a huge difference here. A Taycan Turbo S costs about £1,500 per month so that's £18,00 per year.
If the OP's salary was £118,000 then their take home would be £75,397.40. If their salary was £100,000 then the take home would be £68,557.40. Factor in the £7k child care contributions and the OP would actually be £150 better off and have a Taycan Turbo S on their drive by taking the salary sacrifice option. Mental but that's the rules!
PushedDover said:
I find it a bit morally stiff to try to squeeze childcare out of the state when you are earning £200k.
It s not set up for you in reality.
Wonder why the state so stretched.
Because it sponsors a load of idiotically expensive pensions and useless claimant grotbags. It s not set up for you in reality.
Wonder why the state so stretched.
This bloke is paying far more than most in tax and wants a bit of value back. Good for him.
Gassing Station | Finance | Top of Page | What's New | My Stuff