Can you make your annual 'bonus' tax efficient by maximising relief?

Professional tax planning should be an ongoing process, but year-end decisions are critical. In most cases, unused allowances cannot be carried forward beyond the tax year, making timely action essential to maximise benefits.

Avoiding the Tapered Annual Allowance

For high earners, the annual allowance gradually reduces from £60,000 to £10,000 if their adjusted income exceeds £260,000. However, if a personal contribution reduces their threshold income below £200,000, the full £60,000 allowance is reinstated, providing an opportunity to maximize tax relief.

Bonus Sacrifice for Greater Efficiency

Employees expecting a bonus before the tax year ends may benefit from exchanging it for an employer pension contribution. This approach reduces income tax and National Insurance liabilities, effectively increasing the value of pension savings compared to receiving the bonus as salary.

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