What to do with side hustle income that's growing quicker than expected

[TR888]

Hi, I have a high tax payer and in addition to my salary, I some income from:

• a small apartment I rent out (very little net gain)
• royalties from my books (expected £10,000 by the end of 2023).
• social media related income, possibly £7,000 by the end of 2023.

These are conservative estimates and, as the social media thing is really taking off, income could potentially grow much faster.

I have been so busy I've had zero time to think of the tax implications of all this. I probably need a financial advisor but in the meantime, what would you do with this extra income to avoid paying crazy tax?

Any thoughts?

Or… you could pay the tax you owe on it? And contribute towards public services etc?
not sure what you’re asking really but sounds a little bit like you want advice on tax avoidance which leaves a bad taste in my mouth.

I suppose you can think about things like setting ups. Limited company for your book and social media stuff and doing it that way. Maybe paying into a pension and/or making sure you’re claiming back the tax on charitable donations and offsetting your expenses.
but other than that sort of thing I’m not sure what you want anyone to say? If you’re earning more money you should pay more tax really 🤔

Easiest thing to do is to up your pension contributions.

Sorry if I've given that impression. Your recommendations are e at the kind of thing I'm after. Thank you.

Get an accountant/ book keeper. Make sure you are deducting everything you possibly can.It’s been a while but If you set up a ltd company you can include seven years of set up expenses including if you work at home a proportion of rent/ mortgage/ electricity/ heating costs/ laptops/ phones, research costs etc.

It can really add up and then pension off as much as possible.

Get yourself an accountant sooner rather than later - tell them your whole situation and they will be able to advise

Pension contributions. Pay for financial advice.

Thanks, everyone. I think I'll book a session with a financial advisor.

You need an accountant rather than a financial advisor.

Basically there are two main options that I can think of.

1. Up your pension contributions to keep your non-pension income under higher rate tax bracket. Downside is that you can’t access this money until you are in your late 60s (depends on your current age and could be even later if the government change the rules).
2. Set up a limited company for your side lines and pay corporation tax at 20% and then either:

a. Take dividends as your income, although the government are reducing the tax free dividend allowance (which used to be £2,000 but is now £1,000 and next year £500) and if you can keep your other income low enough by doing (1) above, dividends are taxed at 8.75%.

b. Leave the money in the company (you still pay corporation tax, but don’t draw any dividends) until you are no longer a higher rate taxpayer in your day job, e.g. you decide to retire early or give up the day job to build your business. Then take the dividends each year to top up your income.

That's not quite right - you can pay a lot into a pension £60k a year and catch up for 2 prior years if you didn't use the whole allowances in those years. You can take this money at 55, soon to be 57 and this is only due to rise when state pension age rises, it will always be state pension age minus 10 years, so definitely not late 60s

If you are a high rate tax payer then you are on at least £125,140
You should have plenty of tax reduction options such as pension increases

That’s not quite right either!

You can ONLY offset UK relevant earnings. If you don’t earn 60k you can’t put it in a pension. Rent does not count as earnings

Higher rate is just over £52k

Yup add to your pension, very sensible thing to do