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Post by desmond on Sept 10, 2024 15:50:58 GMT
but that's missing out the other two main options.
Take the extra £10k as salary sacrifice into your pension.
Drop your working hours to 4 days a week to improve work/life balance and earn much the same as previously
I can easily see why both are more appealing than paying 62% tax
Yeah moving that into your pension would probably be the most sensible thing to do - but you're still not turning down the bonus/increase in salary are you? You're just moving it. Tbh I'd probably reduce my hours. I would be absolutely flying financially on 100k and be in zero need of a pay rise anyway. Reduce my work load, please and thank you. That's still not just refusing things. It would reduce net pay but not sure that that would be the result he’d be looking for.
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Post by Stranded Hatter on Sept 10, 2024 16:05:37 GMT
Yeah moving that into your pension would probably be the most sensible thing to do - but you're still not turning down the bonus/increase in salary are you? You're just moving it. Tbh I'd probably reduce my hours. I would be absolutely flying financially on 100k and be in zero need of a pay rise anyway. Reduce my work load, please and thank you. That's still not just refusing things. It would reduce net pay but not sure that that would be the result he’d be looking for. In what situation would you reduce net pay? My point is that all of these options see accepting a pay rise/bonus on your own terms are still a win for you. My point is that (with the exception of hard boundaries the likes of which Waldorf mentioned) refusing a pay rise or bonus because you'll only see a percentage of it is cutting off your nose to spite your face. Under none of these circumstances would you be better off outright refusing it. Which is the argument I see around this 100k threshold all the time (including the time I mentioned someone refusing a pay rise that would have seen them tick into the Higher Rate tax band because this person was completely convinced they would start paying 40% on everything and not just on the amount above the threshold - despite it being a figure nowhere near this 100K area nor related in any way to child tax credit, it was entirely this person not understanding how progressive tax brackets work and these people absolutely do exist). It's something I've never really got about people using charitable contributions to get their tax liability down. However much you save in tax you're donating more to the charity itself. Now sure I see the argument of in that instance you're choosing where your money goes but you're not coming out of it better off personally. Then again I am horribly naive and see my end of year calculation when I do my returns as a source of pride.
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Post by desmond on Sept 10, 2024 16:18:22 GMT
It would reduce net pay but not sure that that would be the result he’d be looking for. In what situation would you reduce net pay? My point is that all of these options see accepting a pay rise/bonus on your own terms are still a win for you. My point is that (with the exception of hard boundaries the likes of which Waldorf mentioned) refusing a pay rise or bonus because you'll only see a percentage of it is cutting off your nose to spite your face. Under none of these circumstances would you be better off outright refusing it. Which is the argument I see around this 100k threshold all the time (including the time I mentioned someone refusing a pay rise that would have seen them tick into the Higher Rate tax band because this person was completely convinced they would start paying 40% on everything and not just on the amount above the threshold - despite it being a figure nowhere near this 100K area nor related in any way to child tax credit, it was entirely this person not understanding how progressive tax brackets work and these people absolutely do exist). It's something I've never really got about people using charitable contributions to get their tax liability down. However much you save in tax you're donating more to the charity itself. Now sure I see the argument of in that instance you're choosing where your money goes but you're not coming out of it better off personally. Then again I am horribly naive and see my end of year calculation when I do my returns as a source of pride. [b I’m pretty certain (but could be wrong) that a pension contribution reduces your salary for income tax purposes, in which case it could see his pay drop back below the £100k threshold for the incremental tax rate. As I also said though it may not help in terms of how any benefits/child/nursery allowance is calculated though. Just past 5 years since I took retirement though so may be I have a foggy mind on such matters. Edit. Such as this, so read “adjusted pay” rather than net pay. www.brewin.co.uk/insights/how-pensions-could-lower-your-tax-bill
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Post by HTC on Sept 10, 2024 16:23:12 GMT
It would reduce net pay but not sure that that would be the result he’d be looking for. In what situation would you reduce net pay? My point is that all of these options see accepting a pay rise/bonus on your own terms are still a win for you. My point is that (with the exception of hard boundaries the likes of which Waldorf mentioned) refusing a pay rise or bonus because you'll only see a percentage of it is cutting off your nose to spite your face. Under none of these circumstances would you be better off outright refusing it. Which is the argument I see around this 100k threshold all the time (including the time I mentioned someone refusing a pay rise that would have seen them tick into the Higher Rate tax band because this person was completely convinced they would start paying 40% on everything and not just on the amount above the threshold - despite it being a figure nowhere near this 100K area nor related in any way to child tax credit, it was entirely this person not understanding how progressive tax brackets work and these people absolutely do exist). It's something I've never really got about people using charitable contributions to get their tax liability down. However much you save in tax you're donating more to the charity itself. Now sure I see the argument of in that instance you're choosing where your money goes but you're not coming out of it better off personally. Then again I am horribly naive and see my end of year calculation when I do my returns as a source of pride.
think you are slightly conflating the effect to the individual getting the pay rise / the effect to the taxman here.
If the individual concerns chooses to work fewer hours for a slightly lower net income / put £10k into salary sacrifice (on which they'll ultimately pay 20% tax) / choose to increase their charitable donations to take them below the £100k threshold / whatever else, rather than paying 62% tax, those are all valid choices for the individual concerned.
However, it does mean the tax coffers aren't getting any money at all on those funds, whereas if the tax thresholds were better tapered on the level between £100 - £125k those incentives not to pay tax on those sums would be avoided, and the net tax take from people in that range of earnings would be higher overall.
I'm broadly coming from the perspective that a lot of people in that bracket are at the very top end of wages in 'normal' jobs, rather than super rich hyper mobile hedge fund city types - things like hospital consultants / law firm partners / senior management in education / small business owners / IT security / critical infrastructre. Exactly the sort of people who have roots / won't jump up and leave the country and could stand higher tax rates, but are aware enough to use rules to their advantage.
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Post by HTC on Sept 10, 2024 16:27:48 GMT
In what situation would you reduce net pay? My point is that all of these options see accepting a pay rise/bonus on your own terms are still a win for you. My point is that (with the exception of hard boundaries the likes of which Waldorf mentioned) refusing a pay rise or bonus because you'll only see a percentage of it is cutting off your nose to spite your face. Under none of these circumstances would you be better off outright refusing it. Which is the argument I see around this 100k threshold all the time (including the time I mentioned someone refusing a pay rise that would have seen them tick into the Higher Rate tax band because this person was completely convinced they would start paying 40% on everything and not just on the amount above the threshold - despite it being a figure nowhere near this 100K area nor related in any way to child tax credit, it was entirely this person not understanding how progressive tax brackets work and these people absolutely do exist). It's something I've never really got about people using charitable contributions to get their tax liability down. However much you save in tax you're donating more to the charity itself. Now sure I see the argument of in that instance you're choosing where your money goes but you're not coming out of it better off personally. Then again I am horribly naive and see my end of year calculation when I do my returns as a source of pride. [b I’m pretty certain (but could be wrong) that a pension contribution reduces your salary for income tax purposes, in which case it could see his pay drop back below the £100k threshold for the incremental tax rate. As I also said though it may not help in terms of how any benefits/child/nursery allowance is calculated though. Just past 5 years since I took retirement though so may be I have a foggy mind on such matters. Edit. Such as this, so read “adjusted pay” rather than net pay. www.brewin.co.uk/insights/how-pensions-could-lower-your-tax-bill
As I understand it (and using made up figures for ease), it's basically this
Say you earn £50k, and pay tax of 20% on all of it. You take home £40k, and then put £5k in your pension, leaving you with £35k net.
Under salart sacrifice, you earn £50k, sacrifice £5k to pension. You pay 20% tax on £45k, leaving you with £36k
If you are a higher rate tax payer, salary sacrifice becomes even more advantageous, as the money you are sacrificing comes from portion of your salary on which you are paying 40%. (this is one of the loopholes that's likely to be closed in the budget)
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Post by Stranded Hatter on Sept 10, 2024 16:32:22 GMT
In what situation would you reduce net pay? My point is that all of these options see accepting a pay rise/bonus on your own terms are still a win for you. My point is that (with the exception of hard boundaries the likes of which Waldorf mentioned) refusing a pay rise or bonus because you'll only see a percentage of it is cutting off your nose to spite your face. Under none of these circumstances would you be better off outright refusing it. Which is the argument I see around this 100k threshold all the time (including the time I mentioned someone refusing a pay rise that would have seen them tick into the Higher Rate tax band because this person was completely convinced they would start paying 40% on everything and not just on the amount above the threshold - despite it being a figure nowhere near this 100K area nor related in any way to child tax credit, it was entirely this person not understanding how progressive tax brackets work and these people absolutely do exist). It's something I've never really got about people using charitable contributions to get their tax liability down. However much you save in tax you're donating more to the charity itself. Now sure I see the argument of in that instance you're choosing where your money goes but you're not coming out of it better off personally. Then again I am horribly naive and see my end of year calculation when I do my returns as a source of pride. [b I’m pretty certain (but could be wrong) that a pension contribution reduces your salary for income tax purposes, in which case it could see his pay drop back below the £100k threshold for the incremental tax rate. As I also said though it may not help in terms of how any benefits/child/nursery allowance is calculated though. Just past 5 years since I took retirement though so may be I have a foggy mind on such matters. Edit. Such as this, so read “adjusted pay” rather than net pay. www.brewin.co.uk/insights/how-pensions-could-lower-your-tax-billSo in my scenario (and I am only looking at what is in the payslip every month and not factoring in tax credits, nursery allowance, etc. Person A earns 100k, is offered a 10k bonus, sacrifices all that 10k into his pension pot. His pension pot grows by 10k, his take home pay stays the same. Therefore he is better off.
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Post by desmond on Sept 10, 2024 16:33:21 GMT
[b I’m pretty certain (but could be wrong) that a pension contribution reduces your salary for income tax purposes, in which case it could see his pay drop back below the £100k threshold for the incremental tax rate. As I also said though it may not help in terms of how any benefits/child/nursery allowance is calculated though. Just past 5 years since I took retirement though so may be I have a foggy mind on such matters. Edit. Such as this, so read “adjusted pay” rather than net pay. www.brewin.co.uk/insights/how-pensions-could-lower-your-tax-bill
As I understand it (and using made up figures for ease), it's basically this
Say you earn £50k, and pay tax of 20% on all of it. You take home £40k, and then put £5k in your pension, leaving you with £35k net.
Under salart sacrifice, you earn £50k, sacrifice £5k to pension. You pay 20% tax on £45k, leaving you with £36k
If you are a higher rate tax payer, salary sacrifice becomes even more advantageous, as the money you are sacrificing comes from portion of your salary on which you are paying 40%. (this is one of the loopholes that's likely to be closed in the budget)
Plus you also get tax relief added to your pension contribution. Which of course is why your pension is then subject to income tax (if applicable) when you receive it which many people seem to fail to grasp/remember.
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Post by Stranded Hatter on Sept 10, 2024 16:34:31 GMT
In what situation would you reduce net pay? My point is that all of these options see accepting a pay rise/bonus on your own terms are still a win for you. My point is that (with the exception of hard boundaries the likes of which Waldorf mentioned) refusing a pay rise or bonus because you'll only see a percentage of it is cutting off your nose to spite your face. Under none of these circumstances would you be better off outright refusing it. Which is the argument I see around this 100k threshold all the time (including the time I mentioned someone refusing a pay rise that would have seen them tick into the Higher Rate tax band because this person was completely convinced they would start paying 40% on everything and not just on the amount above the threshold - despite it being a figure nowhere near this 100K area nor related in any way to child tax credit, it was entirely this person not understanding how progressive tax brackets work and these people absolutely do exist). It's something I've never really got about people using charitable contributions to get their tax liability down. However much you save in tax you're donating more to the charity itself. Now sure I see the argument of in that instance you're choosing where your money goes but you're not coming out of it better off personally. Then again I am horribly naive and see my end of year calculation when I do my returns as a source of pride.
think you are slightly conflating the effect to the individual getting the pay rise / the effect to the taxman here.
If the individual concerns chooses to work fewer hours for a slightly lower net income / put £10k into salary sacrifice (on which they'll ultimately pay 20% tax) / choose to increase their charitable donations to take them below the £100k threshold / whatever else, rather than paying 62% tax, those are all valid choices for the individual concerned.
However, it does mean the tax coffers aren't getting any money at all on those funds, whereas if the tax thresholds were better tapered on the level between £100 - £125k those incentives not to pay tax on those sums would be avoided, and the net tax take from people in that range of earnings would be higher overall.
I'm broadly coming from the perspective that a lot of people in that bracket are at the very top end of wages in 'normal' jobs, rather than super rich hyper mobile hedge fund city types - things like hospital consultants / law firm partners / senior management in education / small business owners / IT security / critical infrastructre. Exactly the sort of people who have roots / won't jump up and leave the country and could stand higher tax rates, but are aware enough to use rules to their advantage.
I am entirely coming at it from the angle of the person getting the pay rise. I have not made any comment about the tax takings. Every time this comes up I am talking about the individual making the choice to accept the pay rise/bonus or not. In every scenario that individual is better off accepting it. I make zero comment about HMRC takings. I'm not conflating anything - you might be.
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Post by HTC on Sept 10, 2024 16:35:37 GMT
[b I’m pretty certain (but could be wrong) that a pension contribution reduces your salary for income tax purposes, in which case it could see his pay drop back below the £100k threshold for the incremental tax rate. As I also said though it may not help in terms of how any benefits/child/nursery allowance is calculated though. Just past 5 years since I took retirement though so may be I have a foggy mind on such matters. Edit. Such as this, so read “adjusted pay” rather than net pay. www.brewin.co.uk/insights/how-pensions-could-lower-your-tax-billSo in my scenario (and I am only looking at what is in the payslip every month and not factoring in tax credits, nursery allowance, etc. Person A earns 100k, is offered a 10k bonus, sacrifices all that 10k into his pension pot. His pension pot grows by 10k, his take home pay stays the same. Therefore he is better off.
Person A is better off.
The tax take is exactly the same as before.
What I'd like is a situation where both Person A is better off, and the tax take is higher.
edit: just seen your last message, we're talking cross purposes.
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Post by Stranded Hatter on Sept 10, 2024 16:35:40 GMT
As I understand it (and using made up figures for ease), it's basically this
Say you earn £50k, and pay tax of 20% on all of it. You take home £40k, and then put £5k in your pension, leaving you with £35k net.
Under salart sacrifice, you earn £50k, sacrifice £5k to pension. You pay 20% tax on £45k, leaving you with £36k
If you are a higher rate tax payer, salary sacrifice becomes even more advantageous, as the money you are sacrificing comes from portion of your salary on which you are paying 40%. (this is one of the loopholes that's likely to be closed in the budget)
Plus you also get tax relief added to your pension contribution. Which of course is why your pension is then subject to income tax (if applicable) when you receive it which many people seem to fail to grasp/remember. Do people really not grasp that pensions are taxable income? Oh who am I kidding of course some don't.
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Post by desmond on Sept 10, 2024 16:36:16 GMT
[b I’m pretty certain (but could be wrong) that a pension contribution reduces your salary for income tax purposes, in which case it could see his pay drop back below the £100k threshold for the incremental tax rate. As I also said though it may not help in terms of how any benefits/child/nursery allowance is calculated though. Just past 5 years since I took retirement though so may be I have a foggy mind on such matters. Edit. Such as this, so read “adjusted pay” rather than net pay. www.brewin.co.uk/insights/how-pensions-could-lower-your-tax-billSo in my scenario (and I am only looking at what is in the payslip every month and not factoring in tax credits, nursery allowance, etc. Person A earns 100k, is offered a 10k bonus, sacrifices all that 10k into his pension pot. His pension pot grows by 10k, his take home pay stays the same. Therefore he is better off. Absolutely he’s better off (in the longer term) my point was that in paying into a pension (even a new small private pension) he can at least avoid the incremental tax rate which would be due were he to receive it as take home pay.
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Post by Stranded Hatter on Sept 10, 2024 16:36:22 GMT
So in my scenario (and I am only looking at what is in the payslip every month and not factoring in tax credits, nursery allowance, etc. Person A earns 100k, is offered a 10k bonus, sacrifices all that 10k into his pension pot. His pension pot grows by 10k, his take home pay stays the same. Therefore he is better off.
Person A is better off.
The tax take is exactly the same as before.
What I'd like is a situation where both Person A is better off, and the tax take is higher.
In scenario 1. where they just take the 10k, they are 3.8k better off and the tax take is 6.2k higher. There's one for you.
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Post by Stranded Hatter on Sept 10, 2024 16:36:55 GMT
So in my scenario (and I am only looking at what is in the payslip every month and not factoring in tax credits, nursery allowance, etc. Person A earns 100k, is offered a 10k bonus, sacrifices all that 10k into his pension pot. His pension pot grows by 10k, his take home pay stays the same. Therefore he is better off. Absolutely he’s better off (in the longer term) my point was that in paying into a pension (even a new small private pension) he can at least avoid the incremental tax rate which would be due were he to receive it as take home pay. I know this. Am I not making it clear in the examples I'm giving?
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Post by desmond on Sept 10, 2024 16:40:36 GMT
Absolutely he’s better off (in the longer term) my point was that in paying into a pension (even a new small private pension) he can at least avoid the incremental tax rate which would be due were he to receive it as take home pay. I know this. Am I not making it clear in the examples I'm giving? Probably not otherwise I’d have been wasting my time posting 😀. Why isn’t there more activity on the football threads.
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Post by HTC on Sept 10, 2024 16:41:25 GMT
Person A is better off.
The tax take is exactly the same as before.
What I'd like is a situation where both Person A is better off, and the tax take is higher.
In scenario 1. where they just take the 10k, they are 3.8k better off and the tax take is 6.2k higher. There's one for you.
My whole point is that most won't take the £10k as salary though.
They put the £10k into a pension, on which the tax take is £2k in 20 years time.
Or they cut down hours slightly, in which case the tax take is 0.
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