Tax threshold - part time or parental leave to come under it?

[Thingstodotwo]

If paid just over £150k (gross salary, is there a point at which my take home would be the same (or better??) if I reduced my salary by going part time to bring me under the threshold?

I’m on £151,500 plus bonus (c£80k gross cash and shares). I clicked into losing my personal allowance last year because of a £2k pay rise. I expect salary will go up to £155k in April.

Or could/should I reduce my annual salary by taking say 2x2 weeks parental leave? Or does that not change my annual salary in the eyes of HMRC. If I did this my bonus (cash/shares) wouldn’t be pro-rated.

I have investment income too from dividends c£12k per year.

Money and tax baffle me so really grateful for any pointers! Thank you so much in advance.

Go to an independent financial advisor.

You have 18 weeks in total until your child is 18. Incredibly unlikely an employer would let you take 4 weeks a year and that’s not why parental leave exists it’s not to facilitate a tax dodge.

Sorry if I’m being dim here but which tax threshold are you trying to keep under? With your salary and bonus you are on 230k ish a year? (The reduction of personal allowance is at earnings between 100-125k)?

Is this for childcare?

Salary sacrifice into pension to £99.9k.

I think best to go and pay someone for advice but surely even if you assume you put the max in your pension (isn’t that 60 k? Possibly more if you’ve not maxed your allowance in the last few years), your bonus and dividends will push you over 150k.

Salary sacrifice into your pension!!

Additional contributions to your pension would also reduce your gross pay? I would investigate that then think about taking unpaid parental leave as this will reduce your gross pay this year too.

You are earning £230k ish a year. Taking a few weeks parental leave is not going to cut it. Go and see a financial adviser.

I don’t think this would be possible, you can only put in max 60k per year (employee and employer contributions combined) and the OP has an income of 230k

It would make sense though to pay full pension contributions via salary sacrifice, your money will be worth double in your pension than in your take home pay and it will grow every year. You can withdraw 25% tax free when you are 57, you will then pay tax at the relevant bands when you start receiving it as income when you retire

You can carry forward unused allowance from previous years so if OP hasn't put anything in last year she could put 99.9k in this year but that's a one year only solution. Not sure why PP has specified 99.9k though.

I think they are referring to keeping below the 100k earnings threshold, where you lose all childcare benefits over 100k, and personal allowance is tapered down to 0 up to 125k, but I don’t think it’s possible to get below 100k with their high income. Maybe close by using previous years pension allowance, depending on how much they have contributed in the last 3 years but probably unlikely if they are such a high earner, and this isn’t a long term solution

You need proper financial advice and luckily you can easily afford it so do that

Surely even with a very limited understanding of the tax system it’s very easy see that 230k isn’t near a tax bracket. Why on earth do you think you would be “better off” by taking 4 weeks unpaid leave?

Ah yes I read that as contribute 99.9k you would definitely be pushing it to put enough into a pension to get net adjusted income to below £100k as it's unlikely OP has been contributing nothing to her pension for the last 3 years!

As someone who works in tax sometimes whilst we can suggest various different things sometimes the answer really is just pay the tax unfortunately.

Start by filling in the PWC tax calculator (or some other one, there's a few on the internet), and play around with the pension contributions etc to see the effects.

I agree.

OP your question about getting a better take home salary - your take home is never going to be better by taking unpaid leave. You might end up better off overall if it means you don't lose childcare etc (although at your salary I don't see that happening), but your actual take home is not going to increase. That isn't how tax works.

Yes, absolutely! SAHM here and high earner partner and the tax just has to be paid. We are so fortunate to do big pension contributions and hopefully have the choice to retire early, but beyond that the tax bill is what it is. When I go back to work it’ll be the complete opposite, I will pay no tax, or very little, in comparison.

(Another thing to add for the OP, make sure your savings are in an ISA where possible / up to the yearly allowance, you will pay tax on interest earned over £500 a year for savings not in an ISA if you are on 40% tax and I think it’s all taxed if on 45% plus?)

Thank you so much. All very helpful and food for thought. Not trying to “dodge” tax at all - actually very happily pay anything I should - just trying to get a bit more balance and wondered if I could get that but still take home what I need to (single parent etc etc). But thank you for your time. I clearly need to do some reading up!

And no, this isn’t about childcare benefits. I have childcare covered. Income tax bank £150k+ for highest rate was what I was thinking about but stupidly didn’t factor in bonus. Sorry.

To earn that much and not understand how income tax works is quite baffling.

@anniegun quite. So many threads lately with high earners being clueless when it comes to all things money. It's frankly baffling.
Please share what jobs you do!

Probably tech

Highest rate tax is actually between £100k and £125k (marginal rate of 60%).
You are well past that and are now pay 45% at the top rate. No personal allowance though.

With that level of income you may also be subject to tapered annual allowance.

Why? Why must someone who earns that much have an understanding of all tax issues inside out? They should ideally have a functional, working knowledge of how taxes affect them personally, but not a comprehensive understanding of the entire system. That's what accountants, tax software, and financial advisors are for.