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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I will earn over £100,000 this year, I think it will be

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I will earn over £100,000 this year, I think it will be around £130,000/£140,000. I want to mitigate the 60% tax I will get when I go over 100,000 and before I get the 126,000. Therefore could I get my company to pay all my salary into my pension and use my ISA saving to live on. Basically transfering my savings to my pension. Or is it better to get paid and then just move the ISA's into my pension.

Hi. My name is Tony. I'm looking at your question now and will post my answer or ask for more information here in a short while.

I cannot give you financial advice on whether you should move your ISA funds into your pension. You would need to consult a financial adviser and review the investment performance of the ISA.

 

You can certainly sacrifice salary in exchange for your employer making a contribution to your pension plan but the employer will get the tax relief. If you do that, your gross earnings for the year will just be less than they would otherwise have been. If you have already exceeded £100,000 then you might consider making a one off contribution to your pension plan to save as much of your personal allowance as possible. Look here for information on adjusted net income.

 

I hope this helps but let me know if you have any further questions.

Customer: replied 9 days ago.
Understand about the financial advise, however what I want to understand is what is the tax advantage to me of salary sacrifice vs just putting a lump sum into my pension.

If you sacrifice salary, you won't pay tax or NIC on the amount sacrificed and matched via an employer contribution into your pension plan.

 

If you make a personal pension contribution, you will get basic rate tax relief at source of 20% and a further 20% through your self-assessment tax return. You won't save any NIC.

Customer: replied 8 days ago.
OK thanks, sorry one more question, If I were to sacrifice lets say £1,000 (keep it simple) will that then get tax relief or will it just stay as £1,000 in my pension. I think I know the answer to that but just wanted to make sure

If you sacrifice £1,000 and your employer pays that into your pension then you will have £1,000 in your pension. If you had been paid £1,000 you would have paid £400 in tax and £20 in NIC.

Customer: replied 8 days ago.
OK, but then if I put that £400 into the pension then how does that look from a tax point, sorry to ask, just need to be sure

If you put £400 into your pension as a personal contribution you will save £160 in tax overall. £80 will be added to your pension to make the total £480. The other £80 will either reduce your tax deduction from your pay or be claimed via your tax return.

Customer: replied 8 days ago.
OK, got it now understand the difference between sacrifice and personal pension payment. its juts I have always paid a contribution from my salary but I assume that has been after tax, where as a sacrifice is before tax and therefore no relief is given, not so band when under the £100,000 barrier, but above it then £1,000 is a good option if my company is prepared to change my employment contract

Correction:

 

If you put £400 into your pension as a personal contribution it will gross up to £500 and HMRC will add £100 so you have £500 in the pension. You will claim a further £100 in tax relief through your tax return.

You are saving tax by sacrificing salary.

Would you mind rating my answer before you leave the site please.

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Thanks.