Hi UK Monkeys,
Have a question, in UK you face 60% tax between 100k-125k as they reduce your personal allowance. My base is below 100k but with bonus I will be comfortable in this range. As bonus is given lump sum end of year, can I immediately pension contribute extra than I normally would once I get the bonus, before the bonus is taxed at 60% if that makes sense
Thanks
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The issue with the marginal tax rate of 60% is unfortunately unavoidable unless you want to contribute all of your earnings above £100k into your pensions, which you can only access by the age of 55 at the earliest.
So if you earn, for example, £120k all-in, it might make a lot of sense to consider contributing up to £20k into the pension. If you are at £150k or above, I would not recommend to put everything above £100k into pensions.
In addition to the access age, I would also consider the fees and limited investment opportunities associated with pension accounts. At least my pension account provided by my employer is a rip-off in terms of management fees, so if you are 25 and need to pay the fees for 30 years, you might as well just want to give it to HMRC.
Disclaimer: I am not a tax advisor.
A few counter-points, take it or leave it as I am also not a tax advisor:
Yeah I wouldn't put everything above 100k in if I was earning 150k but for 120k yes I would. Sucks to hear yours is a rip-off, ours is Standard Life and can select a Passive Global Equity fund or Passive World ex UK fund for a total cost of 0.12% per year which is very cheap in terms of fees, I know some of them are a total scam and charge 1-2% per year. The pension relief tax advantages are very good as well
Yes. Most firms allow you to 'salary sacrifice' your bonus directly into your pension. You should raise this with your HR / Payroll team when bonus season approaches.
Yeah I wanted to see if it was possible to auto "salary sacrifice" just the bonus to the extent that my "new" all-in salary becomes 100k but lets say I get a crap bonus and I'm under 100k all-in because markets are shit then I don't want to sacrifice any of it - iygm. I was told that our normal pension operates under a "net pay" arrangement but cheers will approach it with them when the time comes around
What is your source for the 60% tax rate?
I just had a google, tax rate is 40% between £50k and £150k
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