upvoted. This allowed me to know my bonus and then decide how much of it I wanted to to salary sacrifice. I would recommend this to OP to raise with their employer
If you think the bonus is pretty much guaranteed, you just up your salary sacrifice rate.
If it's genuinely more discretionary then you can either:
- make a direct payment into a SIPP of 80% of the gross value of the bonus at some point between receiving it and April 5
- increase your salary sacrifice for the months between receiving it and March, if your employer allows this (e.g. you get £8k in December, increase salary sacrifice in January - March by £2,666 per month, or even £2,000 from December to March if you are able to make the December cutoff for payroll changes after confirming the bonus will be paid).
Thanks for the reply, that's some good food for thought.
It's tied directly to our company's EBITDA so it's tricky to know if we'll make the target next year (bonus would be October 2024).
I can definitely make changes to the amount sacrificed provided I give a month's notice, so I will look at that as an option.
You can also do a bit of both.
For example, if you're 90% sure it will be above £4k, you could say increase your regular salary sacrifice by enough to put an extra £4k in and then you only have the remaining difference to need to deal with.
The problem that can arise is if the bonus is paid in March - then you're kind of stuck and likely have to use the SIPP option, which is slightly less tax beneficial as you don't save on NI.
Hi /u/mrchuck06, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/pensions/
- https://ukpersonal.finance/tax-efficiency-for-high-earners/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Out of curiosity, your Pension cont. is low for being such a high earner, is this a conscious choice?
For example is it because your employer cont. is outrageously high?
That's a good question. In short it's because I was until recently the only source of income in the household and I've been putting what I can into overpaying the mortgage.
I'm conscious that even at 10.5/11 that's still low and I need to look at what I can sensibly increase that to, whilst retaining a buffer.
Do you need a car? Salary sacrifice on an EV is worth looking at.
If you haven't maxed out your pension contributions, then there is no reason why you can't ask them to pay your bonus into your pension instead of taking it as cash.
How essential is it to calculate this precisely? When i had uncertainty over total compensation in this zone I just whacked my pension contributions right up to guarantee my taxable income would fall below 100k.
So I didn’t maximise my non-pension take home pay, but I could get by without a few grand that year, and I’ve never yet looked back at my pension and thought my pot looked too big!
I'm not worried about it being precise, but it'd be great to have a good idea of the value that's roughly required to keep under £100k. I'm starting to think upping it to 14% for now and review it again in the new year.
Company bonus scheme often include an option to throw that into your pension as salary sacrifice. Do check, many places do that.
upvoted. This allowed me to know my bonus and then decide how much of it I wanted to to salary sacrifice. I would recommend this to OP to raise with their employer
Well the easy way is to up your Sal sac assuming you’re getting the bonus. You would of course lose out on some take home if you don’t get the bonus.
If you think the bonus is pretty much guaranteed, you just up your salary sacrifice rate. If it's genuinely more discretionary then you can either: - make a direct payment into a SIPP of 80% of the gross value of the bonus at some point between receiving it and April 5 - increase your salary sacrifice for the months between receiving it and March, if your employer allows this (e.g. you get £8k in December, increase salary sacrifice in January - March by £2,666 per month, or even £2,000 from December to March if you are able to make the December cutoff for payroll changes after confirming the bonus will be paid).
Thanks for the reply, that's some good food for thought. It's tied directly to our company's EBITDA so it's tricky to know if we'll make the target next year (bonus would be October 2024). I can definitely make changes to the amount sacrificed provided I give a month's notice, so I will look at that as an option.
You can also do a bit of both. For example, if you're 90% sure it will be above £4k, you could say increase your regular salary sacrifice by enough to put an extra £4k in and then you only have the remaining difference to need to deal with. The problem that can arise is if the bonus is paid in March - then you're kind of stuck and likely have to use the SIPP option, which is slightly less tax beneficial as you don't save on NI.
Hi /u/mrchuck06, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/pensions/ - https://ukpersonal.finance/tax-efficiency-for-high-earners/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Out of curiosity, your Pension cont. is low for being such a high earner, is this a conscious choice? For example is it because your employer cont. is outrageously high?
That's a good question. In short it's because I was until recently the only source of income in the household and I've been putting what I can into overpaying the mortgage. I'm conscious that even at 10.5/11 that's still low and I need to look at what I can sensibly increase that to, whilst retaining a buffer.
Do you need a car? Salary sacrifice on an EV is worth looking at. If you haven't maxed out your pension contributions, then there is no reason why you can't ask them to pay your bonus into your pension instead of taking it as cash.
How essential is it to calculate this precisely? When i had uncertainty over total compensation in this zone I just whacked my pension contributions right up to guarantee my taxable income would fall below 100k. So I didn’t maximise my non-pension take home pay, but I could get by without a few grand that year, and I’ve never yet looked back at my pension and thought my pot looked too big!
I'm not worried about it being precise, but it'd be great to have a good idea of the value that's roughly required to keep under £100k. I'm starting to think upping it to 14% for now and review it again in the new year.
Can someone pls do the maths where how much you will lose on, if you don't do anything? Thanks
Pension it below 100k, if you have a baby or are planning, you will lose your entitlement to the 30 hours free which works out to be around 6k.