60% tax bracket - starting next year

I found this:

Correct.

yes but...

Depends. But IIUC provided you earn under 150K then there is no issue.

It looks very much to me that for people earning over 150K there will be little to no point paying into a pension going forward unless they've been paying in already. And even for people paying in already there will be no scope to increase payments.

They'll only get 20% tax relief going in and they'll be highly likely to be taxed at 40% when it comes out again.

It also looks like if someone is expecting to earn over 150K for the first time in the next tax year then they'd be advised to pay in a large lump sum into their pension this year rather than increase their contributions in future years.

Tim.

I think this claw back of allowances is a stupid route for the tax system to be going down.

It's effect is exactly the same as increasing the "top" rate of tax by a couple of percent, except that it's unfair as it imposes a marginal rate that is actually more than that for a small number of people.

If the tax system wants to impose a higher top rate it should do so, but at least make sure that it implements it fairly IMHO

tim

This suggests that somebody earning > 150k gross and saving into a SIPP should make a big contribution (£20k max) into their SIPP before

It's rather clever :-( The 100K theshold will not increase so over time more and more people will lose the personal allowance. And the personal allowance can be increased without giving anything to the top earners.

I agree.

Although I think the NI and HRT limits are the same now, we've had a similar unfairness at that earnings level for many years where people earning more paid a lower rate of tax. I don't think "fair" has ever been a feature of the tax system.

Tim.

I believe so.

If they will earn over 150K for the first time this year then it might even make sense to make a charitable donation to reduce their gross below 150K and then pay in more than 20K.

I think it's possible to backdate charitable donations so they might be able to reduce last years income below 150K too.

Assuming I'm doing the sums right, I think for anyone earning over 180K the effective tax rate on pension contributions will be 37.5%. Even if they are only taxed at basic rate on the way out and get 25% tax free I think that works out at 46.9% tax overall compared to 50% and having the money available whenever they want it. And there's always the chance that by the time they get to take their pension there might no longer be a tax free lump sum.

Tim.

Tim Woodall wrote

The bottom line seems to be that > 150k earners are far better off stuffing money into ISAs.

IMO it's almost always preferable to use ISAs over a pension fund. The recent changes will mean for the very top earners it will be better to use a normal savings and investments scheme than a pension.

Tim.