Bonus vs Pensions Dilemma
The 50% rate of tax on income over £150,000 being introduced on 6 April 2010 is encouraging employers to consider bringing forward bonus payments into this tax year. This reduces the income tax that high earning employees will be required to pay on all or part of these bonuses from 50% down to 40%, which seems like a good plan.
This can, however, raise other issues where this advanced bonus – potentially their second bonus paid in a single tax year - would take employees over the £130,000 threshold. If this were to be the case, employees could be subjected to the anti-forestalling tax measures in relation to their pension contributions. If these applied the tax cost, potentially 20% on lump sum contributions could outweigh the other saving.
Cathy Corns is a tax adviser and a partner at Mercer & Hole. If you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.
Date: 11th January, 2010
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