Tax advise on crossing 125K

[PensionAdvicePls]

Hi all - I'm after some tax advice please.

I'm currently on just over 115K and I've been putting anything over 100K in pension. I'm about to go up to 143K (thanks to a promotion - yay!) and I wanted to ask what are my best options?

Should I continue putting everything over 100k in pensions? I'm aware I have a 60K limit and I'll need to check if that's feasible. Or shall I just take it? It's tempting to take it and put the additional money in an ISA towards a house deposit (we need to move to a bigger house)

From a day to day finances perspective, I don't really need the additional money apart from being able to build a pot for house deposit/home improvements.

TIA!!

Salary sacrifice rules are being changed so that NI will be charged on amounts above £2k making pension contributions less tax effective.

@Theyneverknow

There is a change coming in three years time, salary sacrifice pension contributions above 2k PA a year will be subject to national insurance contributions. I’m no expert but DH has been talking about this, he is recently retired, well a year ago and Reeves is looking to raise revenue from pensions. Just like she is looking at ISA products. She is basically after the better off sensible sorts who are not mega rich but who do have extra but don’t hide their assets in the Cayman Islands.

You can also still take the lump sum tax free at 25% but there have been some changes there as well as they capped it.

Thank you @VivaciousCurrentBun
Ah yes I remember reading this- applicable for those on PAYE I believe. Thank you again

Only if your pension is salary sacrifice though 😁

Would you mind sharing the name of the group, please? I’ve clicked on the link but for some reason it won’t open for me. Thank you!

Meaningful Money Community. I’ve found it really useful for trickier finance questions and it’s a a very kind, supportive group.

Tax accountants will likely be experts in planning, but there’s so little the OP can do it’s not worth paying for the advice.

It’s basically:
Pay the tax
Pension contributions to below £100k
salary sacrifice for a car or bike if the employers offer
Buy holidays
Go part time

And that’s about it. She could make tax advantaged investments like EIS and SEIS, but if she’s not an otherwise sophisticated investor it’s unlikely anyone will advise her to do this because of the risk profile.

Personally, I put about £15k into pension as that’s enough for me, buy the maximum holiday allowance my employer allows and just pay tax on the balance. It leaves me in the 60% band between 100 and 125k, but I’d rather have the money now.

I thought this. But generally for me my work situations have had lots of one offs for the last few years and frequent code changes so I would quite like someone to check if all 😁

A few points to consider:

Salary sacrifice changes in 2029 aren’t that significant for higher earners as you are only paying a marginal rate of 2%. I pay in the full 60k pa and it will only cost me 1.2k pa. Not ideal but definitely not enough to make me change my investment planning.

The IHT change from 2027 is more significant but in practice just means you should aim to spend your pension first at retirement ahead of any other investments. Currently the opposite is true.

In terms of avoiding the 62% tax rate there is another option if your DH earns less than 100k and that is for you to SS down to just below 100k and for DH to reduce his pension contributions to provide more available income now.

By doing that you can increase both joint pension savings and also joint monthly take home income.

In that case you don’t need someone who is specialised in planning. Any qualified tax accountant could check it for you. A lot of high street accountants will have that, or a tax specialist high street firm (like tax assist)

Are you under 40 and a first time buyer if so then a lifetime ISA might help

Pension much better option

How does that help? You’ll still pay the tax at on your earnings?

It’s just that there are so many factors and variables. I earn over £200k and the best thing I ever did was engage a financial advisor. I have been working with him for 12 years now, from when I was earning £75k. My priorities over that time have changed, and therefore how I manage ISA, mortgages, workplace and private pensions and mortgage overpayments.

I found it helpful to have someone who could listen to what I wanted (to retire ASAP!), and make short, medium and long term plans aligned with that. For the last several years a massive part of that has been building up my private pension for retirement at 57. That went really well and so the focus now is on other investments, including ISA and mortgage overpayments, that should allow me to retire at 54 and bridge to my pension at 57.

My workplace pension is now salary sacrifice so I’ve mostly moved away from contributing to my private pension for the time being.

the £60k is true but you have three years clawback which can be helpful.

But all or none of this could be relevant to you, depending on your circumstances!

Thank you all for all the advise! I will look into engaging a financial advisor, but in the mean time, put as much as I can into my pension.

There are a million threads from people in this situation - advanced search will help to find them. However they all go the same way as the ony person who can give any more than broad generalisations from Google is someone with a lot more details than you should be putting on a public forum.

Its common sense to get some financial advice at this level of income both for now and for future planning.

Employers also often have info on internal websites regarding schemes they use for salary sacrifice - also different for each employer.

I assume you've maxed out your ISAs and use your capital gains allowance somewhere. Then pension, or pay the tax and put in high rate savings, S&S or bricks and mortar, I would get the house you want now or asap and pay the tax.