PAYE tax for high earners

[Itsallsonew]

Hi all my new partner is just in the high earners tax bracket. Once he is taxed he is quite considerably worse off as he is only just on the upper tier. I wanted to get some advice on if it would help if he put more into a pension or other savings but I don't know where to go. I thought it would be an accountant but the accountant said IFA ...can anyone advise me please? Many thanks 🥰

He isn’t worse off - that’s not how tax works. If he puts some into pension then that’s tax efficient but he won’t end up with more in his pay check.

Yes you would need an IFA, the very simple answer would be yes put more into his pension BUT as he is a high earner it's not quite as simple as that so it's really worth paying for advice.

Pruella, he won't be worse off in tax terms but may have just lost entitlement to (for example) childcare funding.

Increase Pension would probably help to bring it down.

Sorry if I sound like a dick but only just into upper tax bracket is not needs an IFA complicated tax stuff. It really isn’t.

Salary sacrifice into pension to get taxable income under the higher rate threshold.

Also the way the progressive tax system works the increase isn't strictly 20%, it's around 10% as national insurance goes down at the higher rate tax threshold.

He's only taxed at the higher rate above the threshold, so he shouldn't be worse off. You can be more or less "tax efficient" depending on what you do, but for PAYE employees there isn't actually a lot that you can do.

One thing to note is that if his earnings go above £100k, he will start to lose his personal tax-free allowance at a rate of £1 of lost allowance for every £2 of earnings above 100k.

If you're at that threshold, then what you contribute to your pension can be the difference between no tax bill and quite a sizeable one at the end of the following tax year, so it's worth knowing, if that's the level of earnings.

He will only get hr tax due on the balance over the threshold. Nil and 20% is charged as previously. Seems odd if he takes home less now. Is his tax code right?

I don't think it is necessary to hire and IFA for something that is very simple. For everything over 50270 he is taxed 40% not 20%. He also has to pay NI. So for 1000 he will get around 500. If he puts the 1000 into a pension, he is saving 1000 into his pot and start growing it.

I now receive health care through work which is a benefit in kind so my take home pay is now less than before. Could it be something similar to that?

Additionally when he reaches 55, he can withdraw 25% of the pot tax free!

Hi all ...I understand that's it is only once he reached the threshold and am also aware of little things like AVCs that he can utilise. I/ we would like the money for future if possible. @lonelydad2022 I am an auditor with some understanding but I don't know the limits etc. So for that reason rather than me telling him something wrong I thought it would be worth checking. So at 55 he can withdraw 25% lump sum of his pension tax free? Thank you everyone who has given helpful comments :)

So why is he worse off?

The minimum pension age of 55 is going up to 57 from 2028.

If he is hitting issues with annual allowance pensions reduction than he could well be worse off depending on his ability to adjust pension input.

That kicks in around the £200k mark, if you are looking at the move to 40% income tax at £50k things are much much simpler.

Yes. For every pot. Very simple process. I have done it a few times. Takes about a month from start to finish. You cannot withdraw a single pound more or you will reduce your pension allowance from 40k to 4k a year.

If he is hitting issues with annual allowance pensions reduction than he could well be worse off depending on his ability to adjust pension input.

But he isn’t is he? He’s just a smidge into the 40% if I’ve understood the OP correctly.

@Pruella

I’m not sure. It’s profoundly unclear, the OP states high earners tax bracket which could mean 40% to them or 45% depending what their reference point is.

Given close to a third of the full time working population are into 40% rate I assume the latter.

I assumed OP meant the additional tax bracket so would certainly need to discuss with an IFA before messing with pension contributions but re reading her post maybe she did just mean higher rate.

Oh maybe, I assumed 40%.

What do you mean by additional tax bracket? Over 100k? I’m in that bracket and don’t have an IFA - what could they do for me do you think? Genuine question, maybe I’m missing a trick. I just do my own tax return.

Additional rate is 45% on anything over £150k, £100k isn't a new tax brander it's just where your PA starts to taper.

With earnings of £150k you are heading towards pension charges so it's worth a quick convo with an IFA (most offer 30/60 mins free for a quick discussion re something like this) just so you are aware of the issues, there isn't necessarily anything to act on at that point.

I'm not an IFA trying to sell the service btw in case that's what it looks like .

To those saying you aren’t worse off.
Actually there are certain a points of pay where you are worse off. For instance when you just go over 100k but lose all your free hours for nursery in on one swoop.

I did wonder if we were looking at the £100k + bracket. For a couple of k earnings you do lose out overall.

Struggling to see how he is only just in the upper tier yet contributing to pension?
Because of the tax free allowance and pension contributions you’d have to earn a little bit more than “just” to think your tax is considerable.

also just put more into pension.

Additional rate is 45% on anything over £150k, £100k isn't a new tax brander it's just where your PA starts to taper.

Ah thanks, got you now! I am not over 150 currently - possibly next year but I think my pension contributions will keep it comfortably under.