Effective 65.4% Tax Relief on Earnings Between £100,000 and £112,950

From 6th April 2010 the personal allowance will gradually be reduced for those earning more than £100,000 and completely disappears for those earning £112,950 or more

This makes salary sacrifice i.e. giving up salary in return for a pension contribution, potentially attractive for some people the table below demonstrates this.

	Prior to sacrifice	After sacrifice	Saving
Gross income	£112,950	£100,000	£12,950*
Personal allowance	Nil	£6,475
Total Tax	£37,700	£29,930
Employee NI	£4,889	£4,760
Net income	£70,361	£65,310
Employer NI	£13,725	£12,068	£1,657*

So there is a total saving of £14,607*, which is then used as a pension contribution. This is at a ‘cost’ of a reduction in take home pay of £5,051. In other words the effective tax relief is 65.4%.

Alternatively, by making pension contributions in the normal way and not via salary sacrifice the upside is still favourable with up to 60% effective tax relief.

If this strikes a chord with you, then please contact us to discuss whether a free initial consultation with Julie Routledge DipPFS, of JWPCreers Wealth Management Limited would be appropriate. The right planning now can make a significant difference to your wealth in the future.

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