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

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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?

And people wonder why the newer generation is having children in far fewer numbers than ever before! It’s a sensible thing to avoid having kids if you’re not either heavily subsidised by the state or in the top 5% of earners, thus creating a next generation more divided than ever. It’s a huge moral failing of this country to not support families and it’ll bite us all in the bum when our population goes down and no one is left to pay for our state pensions

Every person who pays into a pension is saving tax. Do you have a problem with that?

Do not take a lower amount or decline the bonus.

Open a SIPP (you can do this in 30 mins with vanguard or AJ bell) and put the full 5k bonus in there.

the legal ways to avoid tax around the 100k mark mostly involve

Paying into a pension (good to avoid future pension payments by governement under pension credits) or giving to charity (good for charity/society). All things in LAW that are allowed and encouraged by the government

The real issues here are things like footballers/millionairre business people who are paid by off books/in gold/not paid but "given loans". All are using tax laws wording to try and avoid paying any tax and generally get stopped under General Anti avoidance measures.

(and i in fact use the same pension laws and pay half my (part time) salary into the pension (via salary sacrifice) to save myself 20% tax/12% NI and my taxable salary is just above the PAYE threshold - My employer also pays the 13.8% NI they save into the pension - so i get around 45% boost to my pension for every £100 not taken as salary.

so the benefit is there for EVERYONE to take advantage of if they wish - at higher levels you avoid 40% and 2% NI or the £100k cliff edge)

People really do put a lot of emphasis on their subjective feelings when issues like this come up. We see the same in discussions about people not working more when they're reliant on top up benefits because its not worth it, and there are invariably posters talking about their belief that people should be self-sufficient, benefits not being a choice or whatever. All that changes is the political views of the particular posters centring their own feelings on the matter.

Vanishingly few of us have enough influence for our personal sympathies to matter beyond maybe a few people we know. At best. Really, if one wants to go beyond simply giving advice, the question that actually matters is whether one thinks its a good idea to have a system that incentivises people to lower their incomes or not.

No. You pay tax on what you draw down after the tax free lump sum anyway. It's the other things mentioned that rather grate on me, and the concept of the first thought seemingly being how can I pay as little as possible. I acknowledge however that this is a subjective feeling.

Or how to not actively be thousands of pounds worse off for a relatively small pay rise - in op’s case.

OP would not only pay higher income tax in Germany, but would also have health, pension and care fund taxes to pay on top. But, yeah, cheaper childcare.

No, it isn’t. OP won’t be paying more tax, she will be losing benefits. On a household income of £130k+.

I understand the issue.

The Tories have created this issue.

My point is only that factually it is not a 100% tax rate. The issue is the loss of childcare support.

You still don’t understand marginal and effective tax. Still not sure why you’re on this thread to be honest.

It was Labour and Gordon Brown who removed the personal allowance for higher earners. If it was still in place the 100k cliff edge would be nowhere near as bad.

It’s actually around 70% tax with the loss of personal allowance. 100% marginal/effective if you lose childcare funding too. There is a reason the office of national statistics has highlighted this as counter productive. Another person who doesn’t understand without any constructive advice. Well done you.

She would be better off overall as she would have a drastically reduced childcare bill and would receive far superior healthcare and a much higher state pension. She would actually be getting something for her money as opposed to in this country where the highest earners fund everyone else, still get a shit healthcare and pension and then get attacked by people like you.

The Tories have been in power for 13 years, no?

They are responsible for the tax and benefit situation.

They have restricted child care support. They have restricted child benefit. They have increased all our tax bills.

The Tories have created the OP's issue.

Goodness, you have such an angry posting style. I hope you feel better soon

But our household income could be £180k if we were both earning £90k each and we wouldn’t have this issue.

also, the £4k ‘tax’ free childcare is described by the government themselves as effectively basic rate tax relief on childcare. The gov add back the tax relief before I pay to nursery. If I’m not getting this ‘tax relief’ then it’s part of what could be seed as a tax on those earning over £100k, no?

I’m not the one on a thread just to pull another woman down. I know what I’m talking about unlike some. It wasn’t me who clicked on a thread to be all bitter and angry at higher earners - whilst not understanding the situation. I hope you feel the need to not be so resentful soon xx

Agreed that they've had 13 years to make changes if they wanted to.

But apparently you don't understand so you don't have the right to express an opinion.

She’d also be financially better off if DH became a SAHP, or if she stopped using nurseries and employed a nanny.

You’ve attracted a lot of jealous people who have nothing to add but waaaahhh higher earners.

You need to put it in a pension. You’ll lose childcare and part of your personal tax allowance and yes, you’ll be worse off for just tipping over. You will have to still do a self assessment though.

I think you have confused yourself somehow.

I'm not angry or bitter.

As I said, I hope you feel better soon. And learn to tell posters apart.

Labour introduced the charge as a vindictive measure against higher earners in their last budget before they knew they were going to lose the election.

That one move alone cost every higher earner an additional £5000 every year and caused more impact than any of the above measures you mention.

Labour will be an unmitigated disaster again when they form the next government.

Oh I haven’t. Your posts are wrong. It’s clear you have no knowledge of the effective tax.

The Tories have supported it for 13 years, as well as holding the tax thresholds so we all pay more tax.

The Tories are responsible for today's tax situation.