Approaching work tax

[TidyHelper]

I have been offered a role at 102k plus a potential bonus each year in March. I am aware I will pay 60% tax on the extra amount if I go over 100k.

My issue is if I salary sacrifice enough into a pension to make my salary 99k I have no idea how much bonus I will get which will tip it over 100k again.

How do I approach this situation? Any tips?

In similar boat. Have been told I can make a one off payment to pension (which I might do for value of bonus). Hoping to get tax advice but fear running out of time.

Just tell them you'd like them to pay you less as you don't want to pay tax. Maybe suggest they don't give you a bonus?

You realise it’s not 60% on the whole amount don’t you? Just plan to salary sacrifice each month for your salary then in the tax year you get your bonus make a judgement make an additional contribution and claim the tax relief on it through self assessment.

It’s a nice problem to have.

Yawn

Is the max pension limit 40k a year? And is that both employee and employer contribution together?

Additional contribution to?

Why yawn? If anyone doesn't want to pay so much tax, earn less money. It's very simple.

Also the OP is incorrect about the rate. For every £2 earned over 100k, £1 of personal allowance is reduced, so the alternative is to earn more. After 120k (ish), then the gain is higher.

Personally, I viewed it was still worthwhile earning at that rate as it still meant more income. Most companies allow full bonus to be paid into pension.

If you do not want to help please dont put up poor advice

Surely there must be a rough ballpark on the bonus? From your employer or other staff. An inkling? You can't be totally in the dark as to whether it will be £100 or £50k?

Yeah its probably around 20k but I am wary there is max you can put in pension in a single year?

When is your bonus paid? Can you not just make an extra pension contribution? Also, will you contribute a percentage of the 102k to your pension monthly to get under the 100k

It means her effective tax rate between £100-125k is 60%, and it’s very normal to look at ways of optimising your tax if in that zone. Particularly if you have children as you lose childcare help too.

If OP has not been in this situation before, she will not necessarily know how she can ensure she avoids it in eg the case of an end of year bonus.

@TidyHelper speak to your employer about salary sacrifice into pension if you go over the £100k, else you can set up a SIPP and add money yourself to keep your income under £100k that way.

The max you can put in your pension is 60k so your well under

I suppose it comes down to why you want to reduce the tax as you are going over by quite bit

you can assume you will be getting a 20k bonus and put into your pension monthly on that basis. At my place of work we have the choice to waive our bonus into pension so you could just wait until that point and just put in monthly to keep you at the 100k

you may find there are other salary sacrifice benefits that enable you to stay below the 100k. Probably worth a wait and see approach until you’ve seen the lie of the land

also depends on your age, current pension position, etc etc

It's not poor advice. It appears that you don't want to pay the increased tax. You'll still be earning more. 40% of something is better than 100% of nothing. And a I said in a later post, most employers allow you to put your bonus into pension anyway.

How much do I salary sacrifice to stay,at 99k?

That includes employer and employee right?

Does that also include if the pension amount grows that year?

The £60k pension contribution is the total of employer's contributions, your contribution through the workplace and any SIPPs you have.

So, if you earn £100k (to make the maths easy), and assuming your employer pays 10% into a pension scheme and you choose to pay 5%, then £15k will have gone into a pension and your remaining salary will be £95k.

You can then put up to £45k into a SIPP, but this includes the 25% tax relief given back to you when you do that. So in practice, you could put in £36k and the goverment adds £9k to it.

Basically, if you make some kind of contribution to your workplace pension and put your whole bonus into a SIPP, you won't go over the £100k and will avoid the marginal 60% tax rate. Plus you might get to have a well funded retirement!

Thanks this is handy.

The employer puts in 10% into pension. How much should I sacrifice from my salary of 96k. The other 6 grand on top I get is further allowances and benefits which do not add to pension.

Unless you’re in that difficult childcare situation, I’d just pay the tax.

I decided to just pay the tax. I can’t predict my bonus and equity pay outs, and I already pay some extra into pension from other sources, it was just too complicated and ultimately a dodge. So, I just suck it up and pay the full tax without any extra salary sacrifice.

I just pay the tax, otherwise I’m effectively not receiving my bonus, as it’s fairly meaningless to put it in to receive in 30+ years time (to me). I’m not tax averse though. Also people talk about the cliff edge but after the personal allowance is tapered off (over £125k) the 45% rate kicks in so the tax rate is still very high.

@TidyHelper I used this calculator to work out how much I wanted to sacrifice into my pension. Just ran different % until it got to the value I wanted! https://www.thesalarycalculator.co.uk/salary.php

suggest you check if your employer limits how often you change your contributions, some will only allow a change once a year to limit the admin. Also there are other benefits to sacrificing bonus if your employer shares or gives you their ER NI? Worth finding out. Finally the annual pension limit is £60k, but you can use the last 3 years unused allowance so that might keep you going for the first few years bonus.

Thanks what % should I sacrifice