The Autumn Statement (Budget) 2022 has now made it even more important for those earning over £100,000 and in particular, those earning over £125,140 to plan.
Earn Over £100,000
For every £2 you earn over £100,000, your tax-free personal allowance of £12,570 is reduced by £1. This means that if you earn £125,140, you are £25,140 over £100,000 meaning on he £2 over for £1 personal allowance reduction, your personal allowance is zero i.e., 100% of your income is taxed. This is an effective tax rate on that excess £25,140 of over 60%. This is a massive additional income tax bill of £5,208.
Earn Over £125,140
As well as the loss of the tax-free personal allowance (£12,570), the autumn statement confirmed that earnings over £125,140 with be taxed at Additional Rate Tax of 45% from April 2023 rather than the current level of £150,000. If you earn £150,000, this means from April 2023, you will be paying an additional £1,243 in tax each year.
This is an arrangement with your employer where you agree to reduce your income in exchange for pension contributions by your employer. The benefits to sacrificing your salary for additional pension contributions are as follows:
Salary Sacrifice Examples:
Act now and talk to both us and your employer about salary sacrifice to save tax and boost your pension.
Earn £200,000+? If you earn more than £200,000 you should contact us for specific advice as there are additional rules that may affect you in connection with calculations for ‘Threshold Income’, ‘Adjusted Income’ and the reduced pensions annual allowance called tapered annual allowance.