Top rate tax question

FluffySheep

FluffySheep

FluffySheep

Associate
Joined
24 May 2006
Posts
727
Location
North Wales
Hi all

Long one, and a specific question, I'm not certain if you lot will know the certain answer or be able to direct me to it.

I work as a teacher, and my pay now will be £51,742pa, with the top rate tax bracket in Wales kicking in at £50,271. My tax code is 1394 due to married tax allowance, WFH and other bits and bobs (all legit, I'm happy for the tax man to question this!). When the new tax year hits in April I'll be ineligible for marriage allowance as I'll be a top rate tax payer. As I'm just over the threshold it means my pay will drop more than I'll get from the pay rise because of the increase in tax and loss of tax benefit. My idea (from someone I know) is to start Added Voluntary Contributions (AVCs) to my public pension. If I pay £1500pa this drops me below the 40% tax bracket and I keep marriage allowance, get another (small) pension when I retire and generally be better off. Does this all make sense and I know it's legal to have AVCs, but will it muster past the tax man? Will I get to April 2026 with a surprise tax bill somewhere I missed?

Thanks in advance
FluffySheep
 
Yes that will work , we do it at our workplace every year we have bonus and if you put it into a pension it’s not taxable.
 
Yes it makes sense.
What doesn't make sense is the marginal tax rate (your example shows why).
 
Check which way you're paying your pension - there's a chance it's salary sacrifice, in which case it makes sense to permanently alter that going forward rather than AVCs, as you'll then save on NI as well.
 
MichaelAwkward said:
Check which way you're paying your pension - there's a chance it's salary sacrifice, in which case it makes sense to permanently alter that going forward rather than AVCs, as you'll then save on NI as well.
Click to expand...
Standard teachers pension isn't salary sacrifice so can't use that, but thanks all. Nice to get confirmation about what I thought. Never been near being a top rate tax payer before this year...only a bog standard PAYE

FluffySheep
 
It's pretty common in the private sector to do this to keep under certain thresholds. The next nasty one is when reaching 100k, as you start to lose your personal allowance, so the effective tax rate really rockets.

If you were to get say a 40k bonus putting you at 150k then there would be no point. But if a 15k bonus put you at 105k then it makes better financial sense to sacrifice some of that into the pension to stay below 100k.
 
Now I've finally made it in these forums...a thread name request and a Gucci belt reference. Only need a request for a photo of my payslip with a loaf of bread and I've got the triple

FluffySheep
 
Semple said:
It's pretty common in the private sector to do this to keep under certain thresholds. The next nasty one is when reaching 100k, as you start to lose your personal allowance, so the effective tax rate really rockets.

If you were to get say a 40k bonus putting you at 150k then there would be no point. But if a 15k bonus put you at 105k then it makes better financial sense to sacrifice some of that into the pension to stay below 100k.
Click to expand...
The UK tax code seems like a hideous mess these days. The loss of personal allowance and some tax related benefit allowances lead to deeply distorted outcomes.
 
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