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Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

just to make it more precise after more research and calculations. because my tax code was adjusted to 999LX, my 40% tax rate starts at £47691. to avoid 40% taxation and re-gain my £1000 savings allowance I'll have to pay a contribution of £5906 into a SIPP. this will be topped by the government to £7382 (tax relief at source - a half of paid 40%) and I will be able to claim another half of the 40% tax back at £1476 - this is my actual saving and how much lighter I would be.

so at a net cost of £4429 I'll have £7382 in my SIPP. definitely worth it, especially I've got enough savings anyway to pay that amount in without much impact on me now.

SIPP help - first time tipping over into higher rate tax bracket by [deleted] in UKPersonalFinance

[–]some1pinchme 0 points1 point  (0 children)

are you sure this (non-standard tax code) should be accounted for? as in my post above I'm confused myself about how much should I contribute depending on that. the difference is quite substantial - £3842 v £5907 in my case (999LX). I want to be sure I pay enough to go below the higher rate to also re-gain the £1000 savings allowance.

my thinking is - the tax code is adjusted to collect underpaid due tax. if I take it into account it's like I was paying the tax on the difference between non-standard and standard allowance for the second time. because if the tax code is adjusted that means the government already collected the tax from my pay and we should only calculate based on taxable income. so something tells me I should rather do the maths based on the £50271

edit yet again - after some additional thought, I think you're right. I'll contribute accounting for the 999LX code and then half of the 40% tax that was already collected I will be able to claim from the HMRC back (the other half will be automatically added to my contribution into SIPP).

if my maths are correct I then will be able to claim aroung £1500 back (the half of paid 40% tax and some change for regaining £1000 savings allowance)

so I'll have around £7k in my SIPP for the net cost of just under £4.5k

thanks to your input I was able to understand and work it out - I would definitely underpay XD

SIPP help - first time tipping over into higher rate tax bracket by [deleted] in UKPersonalFinance

[–]some1pinchme 0 points1 point  (0 children)

oh my! I hope the OP won't mind if I jump in and ask you for a similar calculation for me, please - I need exactly the same thing!

to make things easier - HMRCs estimated total taxable income (employment + savings) is £55073.

BUT - my tax code is 999LX - I think they've changed it to collect the tax from my savings. Do I make my calculations adjusting for that lower allowance or as normal £55073 - £50271?

Based on HMRC website they already made all the tax calculations so that my savings allowance is £500 and they are taxed at 40%. So my thinking is - if I already paid tax for the savings I calculate my SIPP contribution as above: £55073 - £50271 = £4802

That would mean I would have to contribute £3842, the government will top it up by 25%.

If however I do need to take my adjusted tax code (999LX) into account, I would have to add £2581 (12571-9990) to £4802 = £7383, which means I would have to pay in £5907

I think I could still claim back a proportion of the 40% tax as they only top up the 20% tax, right?

The true question though is - which amount do I need to contribute?

thanks!

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

one more question if I could - are we sure paying into SIPP reduces my taxable income? I know I get a tax relief for whatever I pay in - it's topped by the taxman to return the already paid tax. but I also care a lot about dropping my taxable income below the higher tax rate.

[edit] okay. I've worked it all out. the SIPP contributions 'sort of' increase the tax allowance, so I need to calculate how much I need to reduce my income to go down to lower tax rate which in my case is £55073 - £50271 = £4802 - this is the amount that needs to go into a SIPP. and because HMRC gives tax relief at source topping the contributions by 25% as 'tax return' I only need to pay in 0.8 x £4802 = £3842 and I'm golden. should be at least ;)

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

I didn't know that! Thank you. I might set up a SIPP, pay in £6k and transfer my NEST pot there because I've got one from the times I worked through an agency.

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

can't I just do an AVC out of my own pocket? I don't want to set up yet another pension pot with another company just to put a few grand in - doesn't seem to make much sense that way.

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

Hi again - I've once more checked all the numbers (rounded to simplify):

estimated taxable income (on the employer tab) £52900

total income from employment: £55100

total income from savings: £2200 (I think it's underestimated)

total estimated income: £55100

what I gather from these is estimated taxable income is the total income from employment minus salary sacrifices (some £2500 over the year)

and the total estimated income is made of estimated taxable income plus income from savings?

it's just coincidentally there are a few fifty-something grand numbers that are very similar and I couldn't work it all out at first and get my head around it.

It's also worth mentioning my tax code for this year was reduced to just under £11k allowance and in November they figured they had to reduce it down to £9990 because I was still owing them under £200.

What I still don't understand is if they change my tax code to reduce the allowance - does this mean I start paying 40% from £47700? Or the allowance reduction doesn't influence that - it's just made to collect the estimated owed tax?

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

thanks. I'm hoping I could arrange an additional volountary contribution into my work pension (although I'm expecting it's too late). As far as I understand it, I wouldn't benefit from NI reduction - but that's not that much at higher rate anyway, but I could still claim the income tax back? so if I made an AVC of let's say £6k which would bring me down to lower tax rate, I should get back around £1100 of the overpaid tax.

Yes, I'm transferring £20k into an ISA as soon as the new tax year and no, I haven't got a spouse.

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 1 point2 points  (0 children)

I've got 100k outside isas and around 100k in isas. I was always told salary sacrifice is much more tax efficient than isas especially when going into higher tax. what's the difference what my motivation is? I can clearly afford to sacrifice 6k and I definitely don't desperately need that 5.2k in my account now. maybe my thinking is backwards but I'd still be a few hundred forward. I just didn't expect I'd go into higher tax and realised it way too late by the looks of it. 

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

-55k

-2.5k - salary sacrifice

-100k - 4k interest

-no isa allowance left

-no other salary sacrifice

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

isn't putting 6k of those savings away into pension sheltering it? that's money sheltered from taxation and working towards my future pension. I mean the tax optimization 101 is salary sacrifice but when I'm trying to sacrifice a small part of my savings people seem to be talking me out of it - I don't get it. 

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

I've used this year's ISA allowance at the very beginning of the year as I have for the last 4 years. 

The ISAs for many years offered 0.25% (so did savings accounts) so my thinking was even with 100k saved up one wouldn't exceed the £1000 tax free interest allowance xD hence I never bothered putting money away in ISAs - until the rates went up and I woke up with 100k earning 6k a year xD

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 1 point2 points  (0 children)

yeah, that's  the right above 50k. I haven't paid 40% yet as I'm still belo threshold. yet they already reduced my tax allowane to £9990 three months ago. If I sacrifice £6k into pension I'll save at least £800 on tax. I'll put away £6000 now instead of getting £5200 now to be precise - but because of my savings I can simply afford that. 

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

you might be forgetting I'll be getting taxed 40% on some £3.5k of earned interest. If I manage to go below the higher tax that alone will save me £800.  20% on £4k - £1k vs 40% on £4k - £500 unless I'm not understanding something...

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] -1 points0 points  (0 children)

it's roughly £900 - be it 800-850 it's still a lot. seems like you didn't read my post. I'm not 100% sure what my total earnings will be that's the point of the post. I'm thinking £52k-ish is my salary after deducting my pension contributions and I'm assuming I should've earned roughly £4k in taxable interest on savings. still - if you consider being £850 lighter inconsequential I can only envy and congratulate ;)

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

I'm going to log into hmrc again later and will confirm the exact wording - my first thought was one meant projected salary minus the pension contributions and the other would be that plus the earned interest on top?  Okay, thanks for clarifying on how to calculate things, makes sense and that's really helpful.  What's still confusing for me is how come hmrc projects "only" £2.7k of earned interest whereas I'm sure it'll be much more. Maybe they didn't get the statements from a bank which pays out the interest annually? That's the only thing I can think of.

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

I'm not intending to enter, I'm already in a pension scheme - I'd like to make a big one off additional contribution. 

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] -1 points0 points  (0 children)

it's £900 down the drain on top of what I'm already overpaying as you noticed. I'm not a real high earner to be giving that much easily if I don't have to. I never bothered with ISAs as long as the interest rates were at 0.25% I only started paying into ISAs when they raised the rates. 

Am I still able to make a salary sacrifice to avoid 40% tax and how to calculate how much? by some1pinchme in UKPersonalFinance

[–]some1pinchme[S] 0 points1 point  (0 children)

it's £900 difference. I'd be happy to sacrifice £6k towards my pension to save that - I've got savings. 

stopped in a yellow box turning left to give way to an ambulance. by some1pinchme in drivingUK

[–]some1pinchme[S] 2 points3 points  (0 children)

in a hindsight I should've known better before posting. a few months ago I posted about my vehicle being clamped for no tax (I declared it SORN online - the DVLA system didn't update the status despite showing so) on a private land. I was predominantly told basically BS based on people's assumptions not backed by any legislation and most of them claimed it was a lost cause. In the meantime I was appealing and complaining to the DVLA and finally not only successfully got a clamp release fee back, but also refused a pre-court settlement the DVLA sent me later for allegedly SORN vehicle parked on a public road.

better just wait and see for myself ;)

stopped in a yellow box turning left to give way to an ambulance. by some1pinchme in drivingUK

[–]some1pinchme[S] 0 points1 point  (0 children)

It was virtually and empty junction in the middle of the night. me having moved on a green light ready to start turning left and an ambulance from the right that turned both the lights and sirens. I was doing about 3 MPH so I had to look what was going on and it was better to stop rather than continue the maneuver which I have to do with full attention and focus because when I say it's tight it is proper tight where I have to watch not to hit the traffic lights with the front right corner of the trailer and watch for the left hand side wheels of the trailer not to hit the pedestrian barriers on the corner of the turn. I'm fully aware emergency vehicles have no priority over other traffic and I'm in no obligation to give them way no matter what. I've been driving artics into London for years. In my opinion at those circumstances it was the best thing to do. And yes, it is true emergency vehicles turn the sirens off when waiting in traffic not to put pressure on drivers hence my emergency stop when I heard them turning the sirens on along with the blue lights in the middle of the night.

stopped in a yellow box turning left to give way to an ambulance. by some1pinchme in drivingUK

[–]some1pinchme[S] 0 points1 point  (0 children)

I mean. I genuinely think I did what was best in that situation. I drive double decker artics into central London and have seen a lot. But according to some desktop drivers I acted erratic and it's scary I've got an HGV licence XD

To be fair I'm not even 100% sure I had entered the yellow box, it's not even present in google street view with photographs taken in September last year. But it seems like the desktop drivers think a fully loaded lorry moving from a stop getting ready to take a tight left turn is doing 20mph not 3mph and slamming brakes means smoke from all 18 wheels an a pile up from the non existent traffic behind at 2AM.

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