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Salary exchange and six-figure curse

Lynx
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Salary exchange and six-figure curse

#124312

Postby Lynx » March 12th, 2018, 5:23 pm

Consider a remuneration package of:

- £110,000 p.a. base
- variable bonus paid in month of May each year
- 6% employer pension contribution based on £110,000 [£6,600 p.a.]

Would the following salary exchange mechanism work, mindful of the annual allowance and associated pension provisions:

1) £12,000 p.a. from base salary exchanged as employer pension contributions, i.e. £1,000 per month

2) Bonus is exchanged as one-off employer pension contribution up to and not exceeding the value of £20,000

3) Any remaining bonus is paid as normal

Thus if bonus exceeds £20,000, then the above system should result in an annual pension contribution of:

6% of £110,000, which is £6,600 + £12,000 base sacrifice + £20,000 bonus sacrifice,

... which totals £38,600.

Which is below the £40,000 annual allowance.

Does the above system seem reasonable?

TUK020
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Re: Salary exchange and six-figure curse

#124424

Postby TUK020 » March 13th, 2018, 7:13 am

yup,
and it keeps the base salary just below the 100k limit at which personal allowances get withdrawn (resulting in a marginal tax rate of 62%)
tuk020

DrBunsenHoneydew
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Re: Salary exchange and six-figure curse

#124615

Postby DrBunsenHoneydew » March 13th, 2018, 6:58 pm

That looks fine save that, if the bonus and taxable savings etc income together is more than £33400, you would have the Pension Annual Allowance restricted below £40k of course as your total income would exceed £150k.

Lynx
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Re: Salary exchange and six-figure curse

#124738

Postby Lynx » March 14th, 2018, 10:19 am

Thanks for taking the trouble to calculate the £33400 figure @DrBunsenHoneydew. This concords exactly with my own calculation.

Are there any creative ways to deal with the situation of bonus (+savings income) exceeding £33400?

Perhaps one idea would be to ask my employer to retain the sum for me and/or use it in the future to buy equity in the firm if my employer will let me?

Spet0789
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Re: Salary exchange and six-figure curse

#124744

Postby Spet0789 » March 14th, 2018, 10:29 am

In the current climate (see BBC!) I would be astonished if your employer will go out of its way to help you avoid income tax with some contrived arrangement.

Unfortunately I suspect your better options are to:

- suck it up;
- suggest to your employer that you reduce your hours to take you out of that marginal band; or
- suggest that your employer give you a pay rise so that on a net basis you are appropriately incentivised, given your confiscatory marginal tax rate.

Urbandreamer
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Re: Salary exchange and six-figure curse

#124768

Postby Urbandreamer » March 14th, 2018, 11:53 am

Lynx wrote:Are there any creative ways to deal with the situation of bonus (+savings income) exceeding £33400?


It is getting more and more difficult, and there are risks attached.
However there is the instant 30% tax rebate on VCT or EIS investments.
In theory you could avoid much if not all income tax.

https://www.gov.uk/guidance/venture-cap ... -investors

Please note the web address on my link. If this method of avoiding tax is contrived, then it has been contrived by our government.

Spet0789
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Re: Salary exchange and six-figure curse

#124940

Postby Spet0789 » March 14th, 2018, 7:21 pm

Urbandreamer wrote:
Lynx wrote:Are there any creative ways to deal with the situation of bonus (+savings income) exceeding £33400?


It is getting more and more difficult, and there are risks attached.
However there is the instant 30% tax rebate on VCT or EIS investments.
In theory you could avoid much if not all income tax.

https://www.gov.uk/guidance/venture-cap ... -investors

Please note the web address on my link. If this method of avoiding tax is contrived, then it has been contrived by our government.


I don’t think this works for the OP. The problem he[?] has is that the marginal rate of tax at his income level is >60%. Investing in VCTs or EIS gets (IIRC) a flat 30% tax rebate. It doesn’t alter your taxable income as say salary sacrifice does. That is what the OP needs to do.

Kantwebefriends
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Re: Salary exchange and six-figure curse

#125868

Postby Kantwebefriends » March 19th, 2018, 12:10 am

To receive a £40k annual allowance you need at least one of (i) Adjusted Income < £150k, or (ii) Threshold Income < 110k.

Here's a good discussion
https://3652daysblog.wordpress.com/2018 ... nce-taper/


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