£99,999 Salary

[brianb]

I understand the benefits of keeping your salary under £100k along with the mechanism to do so (salary sacrifice/ pension)

Is my hypothetical situation below correct?

£100k basic wage
£20k bonus
10% pension contribution

120,000 - 12,000 (pension) - 12570 (tax code) = £95,430 taxable pay therefore under the threshold?

[MaxFromage]

No you have to ignore your personal allowance for these purposes. That only affects the tax you pay, not your reported total gross income.

So if you have £120K gross income, you need to pay £20K gross into your pension to get down to £100K

[macron]

Erm, no.

https://listentotaxman.com/

Plug in th figs, including a lower number, you'll see your 12k allowance drops if you blow over a ton after a pension deduction.

Quite why so many people get her up about it I don't know, yes it's a st marginal rate, but it's still more money than you had, and you can always pay into a SIPP/ make AVCs or similar if it really offends you. Before moaning that public services are st.

[ChocolateFrog]

macron said:

Erm, no.

https://listentotaxman.com/

Plug in th figs, including a lower number, you'll see your 12k allowance drops if you blow over a ton after a pension deduction.

Quite why so many people get her up about it I don't know, yes it's a st marginal rate, but it's still more money than you had, and you can always pay into a SIPP/ make AVCs or similar if it really offends you. Before moaning that public services are st.

Well said.

Staggers me that someone who's clearly smart enough to warrant a 120k job doesn't know the very basics on tax.

[UpTheIron]

Also - the 10% pension contribution - I'd be surprised if your employer will automatically deduct it from your bonus unless you ask them to specifically.

In your example I'd expect your taxable pay to be £110k (£90k basic after pension contributions, plus £20k bonus).

Don't forget to account for any benefits in kind such as medical insurance.

[peterfield781]

ChocolateFrog said:

macron said:

Erm, no.

https://listentotaxman.com/

Plug in th figs, including a lower number, you'll see your 12k allowance drops if you blow over a ton after a pension deduction.

Quite why so many people get her up about it I don't know, yes it's a st marginal rate, but it's still more money than you had, and you can always pay into a SIPP/ make AVCs or similar if it really offends you. Before moaning that public services are st.

Well said.

Staggers me that someone who's clearly smart enough to warrant a 120k job doesn't know the very basics on tax.

120k is not a large salary. If you focus on mean average crap and ignore costs of living in different locations it may seem higher than you get.

What irks is the utterly ludricrous 62% marginal tax rate caused by the decreasing personal allowance which hasn’t kept up to anywhere near inflation, originally inflicted by another Labour chancellor, Alastair Darling.

Edited by peterfield781 on Thursday 24th October 18:23

[Dingu]

peterfield781 said:

120k is not a large salary. If you focus on mean average crap and ignore costs of living in different locations it may seem higher than you get.

What irks is the utterly ludricrous 62% marginal tax rate caused by the decreasing personal allowance which hasn’t kept up to anywhere near inflation, originally inflicted by another Labour chancellor, Alastair Darling.

Edited by peterfield781 on Thursday 24th October 18:23

And kept by how many Tory ones?!

I agree the removal of allowance is stupid btw. But turning the point into a Labour is bad one is equally as daft as the allowance loss.

[MaxFromage]

macron said:

Erm, no.

https://listentotaxman.com/

Plug in th figs, including a lower number, you'll see your 12k allowance drops if you blow over a ton after a pension deduction.

Quite why so many people get her up about it I don't know, yes it's a st marginal rate, but it's still more money than you had, and you can always pay into a SIPP/ make AVCs or similar if it really offends you. Before moaning that public services are st.

Unless of course it's because he'll lose his free childcare. And then he may not have more money.

[macron]

MaxFromage said:

Unless of course it's because he'll lose his free childcare. And then he may not have more money.

You mean the childcare the rest of us pay for?

Edited by macron on Thursday 24th October 20:29

[balham123]

MaxFromage said:

Unless of course it's because he'll lose his free childcare. And then he may not have more money.

Yes, that can take marginal rate over 100% if you are in the sweet spot where you lose your childcare and personal allowance

[VR99]

UpTheIron said:

In your example I'd expect your taxable pay to be £110k (£90k basic after pension contributions, plus £20k bonus).

Don't forget to account for any benefits in kind such as medical insurance.

I use my payslip to track taxable pay and tweak my pension contributions accordingly as tend to zig zag my salary sacrifice throughout the year.....and hopefully not confusing myself here but think you have to factor in savings interest where applicable?

Edited by VR99 on Thursday 24th October 19:06

[MaxFromage]

macron said:

You mean the childcare the rest of us pay for?

Let us hope someone asking such a question has not reproduced eh?

I suppose that depends on whether you think society needs us to reproduce to continue to exist as we are

As a father to a moody 13 year old, I'm certainly doing my duty at the moment...

Edited by MaxFromage on Thursday 24th October 19:04

[ATG]

peterfield781 said:

120k is not a large salary. If you focus on mean average crap and ignore costs of living in different locations it may seem higher than you get.

It is very hard to make that argument stand up.

If you live in area that makes living on a 120k salary a struggle ... move somewhere less expensive. And, yes, sufficiently cheap areas exist even in the South East and could accurately be described as "most places". Yes, you're not going to be living in Holland Park, but "not living in Holland Park" is not a definition of "living on the bread line".

If you drill into the earning stats, 120k p.a. puts you in a pretty rarified group except in a very few locations.

Comparison to the mean and median in London is an entirely statistically sound starting point. 120k is a shade under three times the median and more than twice the mean London full-time annual gross salary, which are 39k and 52k respectively according to the latest data from the ONS. So 120k isn't going to make you super-rich, but by any sane definition you could describe yourself as "well off".

Edited by ATG on Thursday 24th October 19:07

[MaxFromage]

The problem is it's one of the worst tax policies out there. A couple earning £99K each will get the free childcare. A family with one person on £130K and the other not working won't get it. It throttles productivity. If they scrapped it, overall tax take would rise.

[valiant]

peterfield781 said:

120k is not a large salary.

Edited by peterfield781 on Thursday 24th October 18:23

PH never fails.

£120k puts you in the top 2% of earners. By any stretch it is a large salary especially compared to the national average.

[Panamax]

I've always wrestled with this subject so will attempt a summary for my own edification...

0 - 12,570 no tax
12,571 - 50,270 tax at 20% (8.75% on dividends)
50,271 - 99,999 tax at 40% (33.75% on dividends)
100,000 - 125,140 tax at effective rate of 60% (assuming no other factors)
above 125,140 tax at 45% (so there's no longer any drop back down to 40% between £125k and £150k) (39.35% on dividends)

These bands include all taxable dividends, even if in the tax free band, but don't include tax free interest. The tax free dividend band is now only £500.

The removal of personal allowance over £100k is measured on "net relevant income". Hmmm, that's slightly different from "relevant earnings" used for the maximum pension contributions but doesn't matter here.
Adjusted net income is your total taxable income including employment income, self-employed income, rental and investment income, and other taxable benefits etc, less any pension contributions that are paid gross.

So, if you think you're going to hit £120k you make a gross pension contribution of £20k and give HMRC a friendly wave.

However, if that income is £60k earned (so into the 40% band) and £60k dividends (33.75% tax on dividends) do you actually get tax relief on the £20k pension contribution at 40% or at 33.75%? I guess the tax relief should always be at your highest marginal rate, so 40% (effectively 60%)

[Alex Z]

peterfield781 said:

120k is not a large salary.[/footnote]

Of course it is. It’s higher than most of the population can ever dream of earning.

It doesn’t necessarily translate to the type of lifestyle that some may imagine if you are a sole earner supporting a family in the south east but it’s still a lot of money. Complaining about having to dump £20k into a pension each year is very much “oh my diamond shoes are too tight”.

[mikeiow]

valiant said:

peterfield781 said:

120k is not a large salary.

Edited by peterfield781 on Thursday 24th October 18:23

PH never fails.

£120k puts you in the top 2% of earners. By any stretch it is a large salary especially compared to the national average.

Glad I am not the only one thinking that is peak PH
Yes, 120k is a large salary. As you put it, ask 95-98% of the population!

[Panamax]

mikeiow said:

Yes, 120k is a large salary.

Is 60% income tax a high rate of tax?

Bear in mind the 101st pound of earnings is taxed at THREE TIMES the rate of the 51st pound. No wonder there's a growing reluctance for people to inconvenience themselves by going to work and seeking to better their situation. After all, the NHS hospital consultants couldn't be bothered and absurdly were made a special case,

"Pension tax rules apply to all pension schemes the same, but some have had a particular impact on the higher-earning members of the NHS pension scheme in recent years, including consultants and GPs facing tax charges for breaching allowances. There have been changes to reduce this impact, including changes made to pension tax allowances in the 2023 Spring Budget."
https://researchbriefings.files.parliament.uk/docu...

[TwigtheWonderkid]

MaxFromage said:

The problem is it's one of the worst tax policies out there. A couple earning £99K each will get the free childcare. A family with one person on £130K and the other not working ........

...doesn't need childcare!!!!!