Earn over £100k? 5 strategies to avoid losing your personal allowance at tax year end

[@sachinmundra]

I have sat thru a lot of videos on the topic, your are the most useful ones! Thanks!

[@kandot1008]

What about salary sacrifice car scheme

[@peterjones8335]

I am in this marginal rate, I know, nice problem to have. However, this stifles investment as I am loath to make more money from investing as the tax paid on it will be 60%. I could put funds into my pension to offset it but I don't have those funds. If you make £5k in the band between £100k and £125k then you have to put £5k into your pension to offset it. On a £10k pay rise in that band (say, £100k to £110k) you will only receive £3,800 due to 60% tax and 2% NI. It is madness but most people do not know that they are paying it which is why it is rarely discussed. It is also not a headline rate like 40% and 45% so never makes the news. Make no mistake though, between £100k and £125k you are paying 60% tax plus 2% NI. If you earn £125k, maybe go down to four days on £100k as you are paying 60% tax on the Friday (5th day).

[@TheRetirementCafe]

Great Strategy to reduce your hours. Salary Sacrifice straight into your pension is really tax efficient.

[@peterjones8335]

@@TheRetirementCafe Thank you

[@AzeemUrRehman]

This is helpful thanks

[@tbennett9200]

This is so helpful thank you for making this so accessible. If someone earns say £99k a year but then has a bonus of £30k, if they put that directly into their company pension would that £30k be cancelled out, so they don’t lose their personal allowance or have to pay extra tax for that tax year?

[@AzeemUrRehman]

I have the same question

[@peterjones8335]

Yes, best put into the pension from source (your employer) if they are obliging. Otherwise, you can put £30k of your post tax money and get back the tax above 20% in cash from HMRC (need to do a tax return) and the 20% into your pension. However, inputted from source may help to avoid the 2% NI and the hassle of doing a tax return (if you already don't) plus avoid the delay in receiving the reimbursement from HMRC.

[@nimjasani6582]

What happens if you need the cash before you retire?

[@peterjones8335]

@@nimjasani6582 By "retire", I presume you mean the age at which you can withdraw a private pension. If you are below that age, then you can't get it unless there are specific prescribed extenuating circumstances happening in your life.

[@Mangs786]

You will not be able to carry back the gift aid for adjusted net income calculation.

[@mychoiceandmyfuture1373]

Why am i paying tax before free allowance?

[@rod058]

The pension contributions I’m not a fan of as you don’t get access to that money till 57 unless government changes goal posts again and you still have to pay tax on pension income when you receive it. The tax in this country punishes those who take risks to earn more.

[@rdcanyon]

Yes it is annoying, but the money will be nice once the age hits .. hate how they keep increasing the age. Should be 50

[@peterjones8335]

The benefit on the 20% tax rate is the tax free sum once eligible from an age perspective (although, this may disappear). The tax return on the higher rate(s) is received directly into your bank account at the end of the tax year. Excluding NI, total earnings of £100k, £50k of own cash then put into pension. Gov puts £12.5k into your pension, Gov also puts £12.5k into your bank account for the higher rate. Total in pension £62.5k of which 25% can be taken tax free on retirement. So, £50k put into pension initially, £12.k into bank at end of tax year plus £15.625k taken out of pension tax free then remainder taken out paying 20% tax (£62.5k - £15.625k) * 80% = £37.5k So, £50k in and £12.5k + £15.625k + £37.5k = £65.625k out after tax if you are a 20% tax payer on the withdrawal The government gave you £25k on £50k and on that £25k you paid £75k - £65.625k = £9.375k of tax If there was no 25% tax free on the pension and no higher rate refund then the benefit would be no different from an ISA (ignoring the £20k per year ISA limit).

[@ChrisM541]

For your next video suggestion - please(!!) make a video on pension advice for all those millions in the UK who are renting, and who will not have their own house at retiral.

[@rich92850]

This is why high earns are leaving this country.

[@MoneyMasteryhubbb]

This world don’t want you rich at all

[@TheRetirementCafe]

Which of these strategies will you be using, to help you avoid the personal allowance clawback?

[@tbennett9200]

This is so helpful thank you for making this so accessible. If someone earns say £99k a year but then has a bonus of £30k, if they put that directly into their company pension would that £30k be cancelled out, so they don’t lose their personal allowance or have to pay extra tax for that tax year?