High earner query - basically over 100% tax on xmas bonus.

[NameChangeBonus]

My employer has decided to be very generous and give everyone £5k cash bonus this Xmas (in previous years they have given £2k). I have adjusted my salary sacrifice pension contributions so I earn approximately £96k gross. I cannot amend this until April as per my employer policy. I thought there was enough buffer for bonus and benefits.

problem is if I earn over £100k (I have 2 kids aged 1 and 3 in full time nursery)

• I will pay 60 % tax on my bonus
• i will become ineligible for tax free childcare - worth £333 per month,£4k per year
• I will become ineligible for 30 hours childcare for DD1 - worth £600 per month, £7k per year.

basically because I’m getting this bonus we’ll be much worse off financially - is there anything I can do to avoid this?

Easiest option put in your pension via employer, they get tax relief too.

Next option open a personal pension (SIPP) put it in there, handy for one offs, you don’t have to regularly pay in from memory - but please check. Don’t forget you have it.

Another option would be to donate £2-3K to charity, this can reduce your tax liabilities when calculated in a tax return.

Hope it works out. There is a weird earnings scale in the UK where between £100-£150K you get absolutely dinged fir tax.

96K AND partner's salary AND STILL seeking free childcare?
Speechless.

The only option is to put in your pension is you can.

Is paying to your student loan an option ( I can't remember).

@Mikimoto its not free childcare it’s subsidised. Why shouldn’t higher earners receive some benefits? The old child benefit used to be universal & we don’t means test winter fuel allowances. Also ignores the fact that a couple earning 96k each will get “free childcare” but the OP loses out by going over the threshold.

Speechless that you’ve not understood how the system works at all but try to lecture others

Definitely set up a private pension (SIPP, whatever you want call it) to add in the excess over £100k and get you below the threshold. You can then do this in future years anytime you encounter this problem (which will presumably become more likely with inflation pay rises, promotions etc) - it’s a bit more faf than using the employer scheme for everything as you need to claim the additional 20pc via your tax return (the basic rate 20% is added on automatically) but it gives you so much more flexibility to manage these unknowns like your bonus at the end of the tax year.

I did it to great effect for several years to manage my personal tax free allowance.

you can just use one of the investment firms like vanguard (very low fees) or hargreaves lansdowne or whoever and it’s is really very simple to set up.

I do find it interesting that your childcare costs more than your husbands salary and wonder how many women have been made to give up work in similar circumstances for the good of the family pot 🤔 however I agree working through high childcare costs is an investment in the future and obviously your husband needs to be happy day to day with what he’s doing.

hope you get it sorted OP

I don’t think people quite understand how expensive life is in the South East for families with young children.

£100k is 5.5k a month.

£3,800 on nursery.

£400k mortgage is about £2,500.

That’s £6,300. You’re already £800 in the red.

Sounds like you are struggling to afford the choice to have two children close together. As that was a choice you will have to suck it up

Why no savings? Surely you could have been able to stick a little in?

I read the title of the thread and thought to myself I hope OP has her hard hat handy for the responses she will get. And MN did not disappoint. Some mean spirited and nasty comments.

OP on the basis of what has been posted here by those responding solely to the problem you have I am sure you will be able to sort it out. Goodluck!

You have to laugh at the jealousy displayed from those who have no idea about your journey and possible sacrifices to get to your position.

Agree with others, ask for some/all of it contributed towards your pension.

Hi OP,

I haven't read the whole thread, but a very similar thing happened to me when my daughter was in nursery, but in my case, it was a grant of surprise RSUs which took me over the threshold, so as they hadn't vested yet, I didn't have anything to give to charity or put into a pension. My solution was to go part time for 4 days a week and have a day off with my daughter instead until she started school, which I have zero regrets about. If it's in anyway an option for you, I really loved having that day, and it basically paid for itself in my case (because of how much extra I would have had to pay in childcare had I not!).

Good luck!

Set up a SIPP and put some in there

Well said

Going by your posts at least I earn my own money. 😛

The people making bitchy, ignorant comments are likely the same people who have benefited from higher rate tax payers like the OP.

Remember that when you claim state benefits, it’s honest taxpayers like the OP who are contributing directly to your purse!

Of course I don’t earn anywhere near her salary, hardly anyone does. But I have no debt either, so I’m perfectly fine. But a lot of people aren’t, and use food banks, and have no heat, or can’t pay their rent. I would say most posters here aren’t bitter, I’m most definitely not, but aghast at how tone deaf she is in todays climate.
Being so condescending isn’t a great look either.

@ohdamnitjanet why is she tone deaf?

Jealous? 🙄

You start to gradually lose your personal allowance once you earn £100k until it completely disappears at £125k. This has the effect of a marginal tax rate of 60% for that £25k slice of earnings. The personal allowance rules are the same for the whole of the UK.

If you also have children in nursery you lose your funded hours and can therefore end up worse off having a pay rise.

The situation will get even worse when then new additional amounts of funded hours are introduced because they are all means tested. It will result in someone earning £100k paying perhaps £50k more in nursery fees for twins before they start school than another similar household who doesn’t have a single earner above the threshold.

It will make the current inequality even worse as the family getting the 50k worth of free hours could have an overall income of nearly double the one that doesn’t qualify.

This site makes me laugh. We have the snide comments to the women who make a decent wage and then snide comments to the women's on benefits. You can't win. A bunch of jealous women trying to tear each other down.

OP this question has been asked and answered 100 times already in the money matters and childcare topics. Why did you not look on there first or at least post on there?

It’s almost like you wanted to start a bun fight.

Gracious... what a problem to have,

Sorry to hijack the thread, but @mnhq how is someone even allowed to choose the name ‘r*pe should be legal’? Surely you can put in a system to prevent the use of that word in a username? Really upset me this morning.

But the very definition of well off is being able to afford private school for multiple children. OP is in the top 7% of earners, maybe she could consider gifting her bonus to a charity that supports those who can never dream of such wealth