Finance Matters with C Mearns Finance
Received a pay rise or a bonus? Don’t fall into the 60% tax trap
If you’re starting a new job, have had a salary increase or received a bonus, you need to pay close attention to tax once your salary breaches £100,000 or you could inadvertently end up paying up to 61% Income Tax if you live in Scotland.
Quirk in the Tax System
You’d be forgiven for thinking that tax rate doesn’t exist – and indeed you won’t see it listed on the HMRC website. Nonetheless, a quirk in the tax system that sees the personal allowance for higher earners reduce by £1 for every £2 earned over £100,000 creates an effective tax rate of 60% (61% in Scotland) for earnings between £100,000 and £125,140. This tax trap is easy to mitigate, though – by boosting your pension contributions, you can not only bring your taxable income down below £100,000, but also get that additional contribution topped up by 40% or 41% tax relief and, potentially, employer contributions.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances. Any tax relief over the basic rate is claimed via your annual tax return.
C Mearns Finance
BA (Hons) DipPFS
Associate Partner Practice of St James’s Place
‘C Mearns Finance is an Appointed Representative of and represents only St. James’s Place Wealth Management PLC (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives’
SJP Approved 10/08/2023
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