Reducing taxable income/pension

[ThatIsNotMyNameSoWhyAreYouCallingMeThat]

Appreciate the optics on this, but have had a bigger than expected pay rise and bonus and needing to get my taxable income down from next month!

Salary: £90k
Benefits: £9k
Bonus: £9-12k

Totals £108-111k. Really don’t want to lose tax free allowance or pay 45%+ tax as a result. Tax code is reduced due to underpayment this year, so around £9500 in 2025/26. I think that means I need taxable pay of no more than £97k.

Plan on buying max amount of leave (£4200) and I add DH and DD to my PMI (which still appears to be a taxable benefit even when I’m paying for it?).

Pension is DB and accrues at 1/85. I can increase it to 1/65 for 4.5% which doesn’t get me low enough or to 1/50 for 11.5%.

Alternatively I could increase charitable donations (already chunky).

Is there anything else that I’m missing?

What will you lose by going over the 100k? Sorry it’s not clear if you are losing childcare help for eg

Not childcare.

between £100k and £125k you lose personal allowance and pay 45% tax which means it’s effectively a 60% tax rate.

on £111k I’ll lose another £5.5k of tax free allowance which will cost me dear (and I’d rather the extra went to me eventually or charity now than the govt).

Edit - it’s more than £5.5k because of my reduced tax code

I’d pay into pension

Yes I know that about the rates and agree a marginal rate of 60% is counterproductive

i suppose this is really a moral argument - do you want to be like the billionaires of the world and ‘choose’ where your tax dollar goes by donating to charity or do you want to pay tax and let the government choose

although you are choosing to pay 100% to charity rather than 60% to tax

i think OP is restricted in amount she can pay into pension but makes sense to max it even if you can’t put enough in to bring you below 100k

Can’t you just set up a brand new private pension and put any extra into that?

Start a private pension if you can't pay the amount you need into your existing one.

I consider the £30+k I pay in tax and NI to be sufficient for the govt. DH pays similar. Then there’s another £3.5k in council tax, £2k in road tax and £2.5k a year on medication that the NHS doesn’t cover for me.

I’m much rather give more to the local food bank and children’s hospice than the govt. I pay more than my fair share there.

I have a SIPP that I’ll add any extra to if the bonus is larger than expected next year.

Don’t think it’s as good an investment as 1/50 in a defined benefit scheme!

Following this as I have a similar issue. I'm getting a 10k bonus on a salary over 100k and can never find a calculator that accurately tells me what my take home would be on the bonus.

Surely it's more complicated than 10k x 0.4 ?

I want to take the cash for house work but can't budget accurately without that understanding....

Thanks

Well as this is Money then I won’t get into the debate but it looks like your options are gift aid and opening a SIPP

Just start a private pension to take you under the 100k - you then complete a tax return and your tax code will get adjusted the following year to increase your taxable allowance by the amount of pension contributions.

https://www.gov.uk/estimate-income-tax

you could do a before and after with this

You’ll lose £5k of personal allowance, so you’ll pay 40% of £15k =£6k and pocket £4k. (Hence the 60% tax trap.)

I already have a SIPP.

Perfect- just put into that then. And then to your charity of choice

I assume this is an end of tax year decision and next year you can set up regular pension/charity payments. Does your employer have GAYE?

I don’t think I need to put anything into a private pension?.

111000 (gross) - 4200 (leave) - 10350 (pension) = 96450

And then whatever charitable donations.

This is a forward looking issue.

No GAYE. And better (surely?) to put the money into the defined benefit pension than private?

Yes - I understood from your OP that it still wasn’t enough so you were looking for things to get below the 100k.

I was wondering if there were other things I could divert money to that would reduce my taxable income.

You’ll also pay 2% NI on it as well. You’ll keep just 38% of all pay earned between 100k-125k. You also lose access to 30 hours funded childcare and tax free childcare meaning you can end up with an effective tax rate of over 100%.

Pension contributions are pretty much all you can do if you want to reduce your tax bill while retaining the benefit of that chunk of pay.

Yeah it’s limited. I wish they would rethink the tapering of the PA. It’s complicated and creates a bit of a wall for people. but I guess it’s been around so long they won’t unless someone can show they will get more growth and tax take by changing it

I'd do the DB pension option then whack the extra in your SIPP.

What extra?

The DB vs DC pension question will depend really on how much you already have in the DB scheme in comparison to how much you think you will need to live on in retirement. Whilst DB schemes are more favourable they do die with you or have a much smaller spouse only pension whereas a DC scheme can be left to your spouse, your kids or anyone you like. If you already have a good DB built up I would still think about about putting more in a SIPP for the flexibility, particularly if you want to retire early as it could act as a bridge between an early retirement age and taking your DB at whatever retirement age that allows. DB benefits are usually significantly reduced if you take them early.