Any accountants here? Higher earners

[Scottishgirl85]

Me and DH need to get more savvy with money. He earns £120k basic (not inc bonus), but actual take home of basic income is £70k, with £50k going to taxman. DH is a rule follower (to the extreme!) and doesn't want to be a 'tax dodger', which I agree with. But I'm sure we should be making his salary work better for us? His tax code is currently 0T which I believe is due to zero personal allowance, but still seems to be an emergency code that needs fixing?
I earn around £100k, so no impact to personal allowance. But I'm the one that deals with the finances in our household, so I'm completely clueless on this one. Is it worth hiring an accountant for a few hours to take a look over things? Is this what people do? Thanks.

A financial adviser would be a good start, they can do basic tax planning and are more likely to do one offs like this than a tax adviser/accountant. If proper tax planning is needed they will usually have contacts.

Is he paying into a pension? This might reduce taxable income significantly.

Thanks both. Yes he pays 5% into pension, which he should really increase as the company contribution isn't good (new company). Will check that out.

What is the reasoning why he's on 0T Tax code?

Are you both PAYE? That limits options if so.

Pension contributions would be the most obvious place to start. At that sort of salary you could both pay in to reduce taxable income to below 100k each.

Beyond that you need to be looking a a mixture of long term savings, paying off mortgage etc. all depends on your outgoings and lifestyle of course.

Sacrifice all earnings over £100k into pensions would potentially be simplest and bring back personal allowance and reap the most benefit.

But it's all part of a bigger picture that no one knows but yourselves

Agree with increasing pension contributions.

Simply put - if you want to maintain anywhere near your current level of lifestyle at retirement you need to contribute much more than 5% into a pension plus there are tax benefits. By preparing well for retirement you are less likely to be a burden on the taxpayer in the future too.

Thanks so much, pension is way to go!

Agreed. This year is £60k pension contribution allowance, if you can make AVCs then do it.
Keeping below £100k taxable is key - to do that you need to ensure your lifestyle is compatible with about £5k net / mth
Between £100k and £125k is the dreaded 60% tax trap as personal allowance is rated up at double rate - avoid that as much as possible.

@Oblomov23 we have no idea why he's on 0T code. We're both scientists (cancer research) and have never been interested in financial stuff, so are ridiculously clueless...

@alwaysmovingforwards thank you. At what point on the salary scale is it not beneficial to take your income below £100k with increased pension contributions? He gets an annual bonus too which is variable. His recent P60 said £136k total earnings (ie £16k bonus that year). It's a tricky balance, it seems we're at the time in our lives where higher salary would be better than ploughing into pension (3 young children etc). We might not make it to pension age after all!

Rough calcs:
£100k take home is £67k (67%)
£136k take home is £82.3k (61%)
Of the additional £36k, take home is only £15.3k (43%).

So your choice is either £15.3k in the hand, or £36k into a pension that's earning compound interest over the years for your future.
It's a choice of some money now vs more money tied up for the future - totally your call.
Suggest you have a google and make notes - HMRC website is transparent with all this stuff, plus lots of other sources like MSE website.
(numbers I've given are not for Scotland, that's different)

And always worth remembering that it's a nice conundrum to have vs most.

Thank you so much @alwaysmovingforwards ! That's incredibly helpful to see the breakdown.

And absolutely, it is a very nice 'issue' to have. Fortunately in our jobs, we see our hard work directly benefit and save people's lives, which is worth so much more than the money the jobs pay.

Oh and yes, I'm not actually in Scotland anymore sadly. Science jobs all in SE!

Some start points for you

www.moneysavingexpert.com/tax-calculator/

adviser.royallondon.com/articles-and-guides/pensions/the-personal-allowance-tax-trap-60-tax-isnt-the-top-rate-45/

@alwaysmovingforwards sorry last question, is 0T a viable tax code then, or does that need sorting? Thank you!!

An 0T code gives you no tax free pay - normally if the employer hasn't enough information. But at £136k you'll lose the £12,750 anyways...

Quickest way to sort a tax code is to log on HMRC portal with your details and tell them what you think you'll earn in 23/24 - they'll then adjust the tax code through your employer.
https://www.gov.uk/personal-tax-account

@Scottishgirl85 I'm not an accountant or tax advisor btw, so do your own due diligence. I'm just someone with experience in this passing it along to others!

This is the key thing you need to understand with an income above £100k:
https://www.gov.uk/income-tax-rates/income-over-100000

That’s not enough to pay in! Depending on his age and pension pot he should be putting 20% into a pension made up from both his and his company contributions.

If he wants to retire on the expected pension (50% of salary) then will need a pot of approx £1m.

Tax between £100k and £120k is a quirk and will end up paying more.

Have a look at an income tax calculator (free apps or money saving expert) to see what increasing pension contributions do to net income.

Then look at some free pension / retirement calculators. Paying into the pension to reduce the tax above £100k will be a greater saving. Also consider setting up a pension for kids.

OT is a valid tax code in its own right (but is also a generic emergency tax code when the employer has insufficient information about how much personal allowance someone is entitled to).

Hi OP - is your DH aware that on that salary he needs to file a tax return each year?

Thanks everyone, so helpful! Yes 5% definitely too low. I'm not sure what his employer contribution is but it's not great, so going to increase that. He's only been in this job a year, previous pension was much better so he's not in bad position overall.

Yes we both do self assessment every year. We absolutely dread doing it each time! Need to get more clued up.

You say "It's a tricky balance, it seems we're at the time in our lives where higher salary would be better than ploughing into pension (3 young children etc). We might not make it to pension age after all!"

That's true. But the key here is the first bit not the second. If you really need more cash right now than 100k gross each will give you, that's one thing. But pension savings are not just good for tax reasons but also to fund your retirement. And the earlier you save more, the more you'll have - you will have to put much more in for the same standard of retirement if you wait 10 or 15 years.
Plus if anything were to happen to you, you can leave your defined contribution pension savings to your spouse and/or your kids

DH and I both earn around £130-£150k. We've moved to 0T tax codes as it stops the big tax bills at the end of the year- we both earn an amount that means we don't qualify for a tax free allowance so it's best that we're taxed that way. Just done this years tax return and instead of the usual £6-8k amount I owe them, they now owe me about £700.

We're both aware we should try to pay more into pensions to get done tax free allowance but 2 lots of school fees and a big mortgage mean we're a bit stuck.