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Trying to avoid the 60% tax trap

dmukgr
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Trying to avoid the 60% tax trap

#476058

Postby dmukgr » January 25th, 2022, 3:27 pm

I only started a pension relatively recently and so up until this year have been going over the £40k allowance, which kept my salary under £100k in terms of taxable income.

This year I only have the £40k limit to use and I am paying into my pension, through salary sacrifice, pretty much the full £3333 monthly (including works contributions). As it stands, at the end of the year my taxable income will be ~£90k. However, my bonus is looking like £33k on top of that, and this will push me over £100k for the first time and have me affectively paying 60% tax for a large portion of the bonus.

If I overpaid into my works pension, work will pay in the national insurance saved as well (10.78% I think). My question is, what will I have to pay for going over the £40k allowance and can I pay it out of the pension fund directly? I'm wondering if it is worth it, especially as it will then be potentially taxed again when I start drawing on my pension.

genou
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Re: Trying to avoid the 60% tax trap

#476066

Postby genou » January 25th, 2022, 3:46 pm

There's a decent explanation here - https://www.youinvest.co.uk/sites/defau ... e_pays.pdf .

My immediate suspicion is that you won't avoid 60% tax.....

TUK020
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Re: Trying to avoid the 60% tax trap

#476277

Postby TUK020 » January 26th, 2022, 10:38 am

Are you able to move to a 4 day week? Take the additional as free time, which isn't taxed at 60%?

This clawback of personal allowances trap (combined with the LTA) probably explains why 1/3 of doctors in the health service work part time, and 1/3 intend to retire early in the next 5 years.

tuk
(was on a 4 day week for a couple of years, and then retired last summer)

scrumpyjack
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Re: Trying to avoid the 60% tax trap

#476281

Postby scrumpyjack » January 26th, 2022, 10:53 am

Other alternatives might be to get some of your bonus paid after 5th April or make some charitable donations.

Deferring it a bit might simply move some of the problem to next year or it might mean you avoid it this year but pay it next year which would have been the case anyway.

dmukgr
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Re: Trying to avoid the 60% tax trap

#476287

Postby dmukgr » January 26th, 2022, 11:29 am

I've already bought a weeks extra holiday which is the maximum I am allowed. I don't think 4 days a week would be a good idea for personal reasons and the way work is going I could be a fair bit above the 60% tax trap in the following years.

The charity one is an interesting one and I wonder how easy it is to create a charity ;) Seriously though, I did think about paying into some charities and will look into that some more.

scrumpyjack
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Re: Trying to avoid the 60% tax trap

#476294

Postby scrumpyjack » January 26th, 2022, 12:07 pm

dmukgr wrote:I've already bought a weeks extra holiday which is the maximum I am allowed. I don't think 4 days a week would be a good idea for personal reasons and the way work is going I could be a fair bit above the 60% tax trap in the following years.

The charity one is an interesting one and I wonder how easy it is to create a charity ;) Seriously though, I did think about paying into some charities and will look into that some more.


If you are going to be well above the 100k boundary next year anyway, deferring some of this years bonus so it falls into the next tax year would leave you with an overall lower tax bill.

Kantwebefriends
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Re: Trying to avoid the 60% tax trap

#476430

Postby Kantwebefriends » January 26th, 2022, 11:57 pm

Consider whether it might be profitable to pay large pension contributions in alternating years, or even one year in three or four. In one year you might avoid the 60% band altogether even if you have to stump up in the preceding year.


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