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I am sure that this has been addressed in some way previously so I apologise for not having the time currently to search through. I am under pressure to set-up benefits in a new job hence the query.
Simply put, can sacrificing salary towards additional pension contributions place me in a lower income tax bracket?
Further details of my situation - I have been unemployed this financial year until now so I am happy that I will be basic rate tax payer this year. Next year, I will be a higher rate payer, but not a great deal above the threshold (~£5k). I have a few variables to consider and want to look to get the balance right.I have a BTL property with an interest only loan on half of the value. This works out for us as a profit of £500 / month which I believe to be the "earnings"(might be changing due to section 24 of course). I want to maximise my access to childcare vouchers, achieved as a basic rate payer. I am also looking to shift some of the BTL earnings towards my wife using the Form 17 route discussed on here. I am happy to put more into my pension via salary sacrifice (matched by employer hence effectively a pay rise of sorts).
Lastly, I fully appreciate that I would be best served by a quick session with a tax consultant to discuss these finer details across both my wife and I (I still have to fully understand the impact of 24 but have several threads on here bookmarked) but it is really the main question that I am trying to find the answer to....
My thanks for you considerations
Yes, if your income was £5,000 into HRT and you put £5,000 into a pension scheme then you would remain a BRT.
Another reason for asking was because the childcare calculators I have found don't allow other salary sacrifices to be included in the calculations, hence I was only being offered HTR amounts...
There is always the possibility that the tax relief could be changed in the budget.
Salary sacrifice is a brilliant way to legally game the system.
Unfortunately the Chancellor has noticed the amount of tax and NIC he is losing due to it!!!!
He has telegraphed that salary sacrifice will be stopped in most cases thereby ending what has been a brilliant tax avoiding strategy.
Govt has realised it's exponential tax loss is up and so it will be stopping it. .
All good things come to an end.
But exploit it while it lasts but plan for it when it ends!
Salary sacrifice is best used once you have achieved the various forms of credit you require as you need to big up your net income
Having achieved the credit then reducing gross income makes eminent sense.
Yes salary sacrifice will reduce your qualifying income and therefore take you below HRT however if you have rental income, this under S24 could put you back over.
Lets say for example your HRT kicks in a £40,000 but you earn from your job £45,000 sacrificing £5,000 will get you below HRT. But if you have £6,000 of rent, regardless of the mortgage, you will go back over, the mortgage will just allow you to claim 20% back leaving you with a 20% tax bill still.
To get round this you would need to sacrifice your current pay overage £5k plus the value of the rent that will take you over £6k, so under this example £11k in total being sacrificed.
There are downsides to salary sacrifice such as sick benefits and redundancy pay, these things are based on your salary and if that income is sacrificed then it cant be used for these calculations, so be aware.
Landlord with 25 years’ experience in the property market and a specialist in tenant referencing, ID and credit screening. Creator of identity, credit and anti-money laundering system ValidID.co.uk