100k tax issue

[marvbandit]

Very lucky and happy to have received a pay rise that takes me just over £100k. DH earns around £25k. We have a primary school aged child. I’m happy to pay taxes and not looking to avoid but don’t want to be actually worse off. Do I need to up my pension contributions to stay at £99k? Sorry not good at financial stuff so this is probably a v stupid question.

Yep, as you've said.

You have three options:

1. Increase your pension contribution. Simply get it below 100k so you don't lose your childcare benefits.

1. Charity. Donate anything above 100k.

1. Ask to reduce your salary.

It depends really. You have a primary school aged child, so your ‘loss’ is £2k a year tax free childcare, if you use that (do you?).

You will pay 62% tax (plus pension and student loan if you have one) on anything between £100-125k. This can in itself be a good incentive to put the extra in a pension, as you get so much back.

So - depending on how much over you are, is it worth losing the £2k childcare (if you use it), and is it worth putting extra in your pension to avoid the 62% rate (probably).

I don’t have any childcare requirements or student loans. If I’ll be better off then I don’t mind paying more tax. I just don’t want to lose money…

I could definitely put in pension. Would I be allowed to put into my husbands pension?

increase your pension contributions: you get 40pc tax relief for a start

and also: if your DH is on 25k that pension may need to stretch for both of you so I’d be saving a decent chunk

We up our pension contributions for this reason.

Not with tax relief no. But you can put up to £60k a year into your own, so you may as well do that.

Above 100k you lose free childcare. If you don't actually use the free childcare then you won't be worse off.

However, since earnings between 100k and about 125k are taxed at 60% (due to the loss of personal allowance) you may want to pay any extra into your pension scheme to stay at 99k.

You say the pay rise takes you over 100k. Is that before your current pension contribution is taken out?

I’m not sure - I think it’s before all deductions. Does that make a difference?

Well, you might not be in the 100k tax trap yet.

If you were on 90k with 10% salary sacrifice you would have been taxed on 81k. If you got a 20k increase to 110k but kept your contributions at 10% you only get taxed on 99k. So you might already be safe for the tax trap.

I know these are quite specific numbers but it’s not an unlikely scenario.