Really close to higher rate tax threshold

[QuestionsorComments]

My salary is £43k

I have pension income of almost £6k

Higher rate tax threshold is £50200 or thereabouts.

I feel I'm being thick because this can't be that unusual.

I haven't had my April 2021 payrise yet because unions are still arguing, they've got to 2%, I can't see it being increased but there no sign of it being agreed. So, when it is eventually paid it's likely to be in 2022/23 tax year. 2% would be £860 so if I get two year's payrise in 2022/23 I'll pay higher rate tax in that year whereas if it was paid when it was due I wouldn't have.

I know it only makes a tiny difference because of the sums involved, but it's bothering me because it could make a difference to my marginal rate for other things and just make things complicated. Is there something payroll do to show it was money owed from a previous year?

@QuestionsorComments

My salary is £43k

I have pension income of almost £6k

Higher rate tax threshold is £50200 or thereabouts.

I feel I'm being thick because this can't be that unusual.

I haven't had my April 2021 payrise yet because unions are still arguing, they've got to 2%, I can't see it being increased but there no sign of it being agreed. So, when it is eventually paid it's likely to be in 2022/23 tax year. 2% would be £860 so if I get two year's payrise in 2022/23 I'll pay higher rate tax in that year whereas if it was paid when it was due I wouldn't have.

I know it only makes a tiny difference because of the sums involved, but it's bothering me because it could make a difference to my marginal rate for other things and just make things complicated. Is there something payroll do to show it was money owed from a previous year?

Could you not reduce your pension income? Or put a pause on it? Make a pension payment of £688 to offset it?

Be mindful of the Money Purchase Annual Allowance for your annual pension contributions.

Out of interest what do you think it will affect?

One thing is interest on deposit accounts. You lose the £1000 tax free if you're a higher rate taxpayer. Again it's more about the hassle than the actual tax due.

You must have a small fortune in cash deposits outside ISAS for that to be a worry?

@QuestionsorComments

One thing is interest on deposit accounts. You lose the £1000 tax free if you're a higher rate taxpayer. Again it's more about the hassle than the actual tax due.

You won't lose it, it will half.

That would mean you having £100k in Cash savings at an interest rate of 0.5% to be adversely impacted?

Make a pension contribution to offset it?

@Mger2

You must have a small fortune in cash deposits outside ISAS for that to be a worry?

Your allowance goes from £1000 to £500 if you're a higher rate taxpayer. That's "only" £50k at 1%, which can't be that unusual for people nearing retirement and less if interests rates rise as expected. It's not about avoiding tax it's avoiding a tax return and if this money was paid when due, nothing would have been due.

I'm not an expert but think two things might work - making an additional pension contribution as pp have said, or completing a self-assessment tax return in 22/23 to claim back any allowance lost.

Yes, the pension contribution is the answer, but ifnl they paid the money when it was due it wouldn't be necessary!

You could put up £50k of you savings into premium bonds to reduce the interest incomegenerated. Added bonus is that any prizes are tax free.
As pp has suggested you could do a pension contribution, and you might be able to reduce tax by making charitable donations but you need to check. It was suggested to me once but can't remember the detail.

@QuestionsorComments

Yes, the pension contribution is the answer, but ifnl they paid the money when it was due it wouldn't be necessary!

But they didn't and you are where you are.

So either Pension Contribtuion
Gift Aid
Or reduce your Pension income

As PPs have said, pension contributions - or seeing what other benefits that your employer may offer on a salary sacrifice basis which would reduce your taxable income, e.g. if you are interested in a bike see if your employer offers a cycle to work scheme (which are on salary sacrifice); if you're thinking of leasing a new car see if your employer offers an electric vehicle benefit which is on a salary sacrifice basis. Obviously, only if you need/want a new bike or car.

When this happened to me, the back pay for the payrise happened in the new financial year and therefore counted in that year, inflating my gross pay. It was a bit of a pain so I paid it into pension.

Why are you drawing your pension if you are still working?