WEBVTT

00:00:00.000 --> 00:00:03.259
Hi everyone, welcome back to the channel. Have

00:00:03.259 --> 00:00:07.440
you ever been presented with a bonus or a pay

00:00:07.440 --> 00:00:10.279
rise and felt like, although you worked hard

00:00:10.279 --> 00:00:13.519
for it, you just had to watch while a chunk of

00:00:13.519 --> 00:00:16.480
it disappeared into a black hole with the taxman?

00:00:17.079 --> 00:00:19.160
I mean, I've been there. Before I retired, I

00:00:19.160 --> 00:00:22.379
was a higher rate taxpayer. And every time a

00:00:22.379 --> 00:00:25.480
bonus came around, it felt like ATMRC took their

00:00:25.530 --> 00:00:28.289
40 % cut and just gave me the scraps. I mean,

00:00:28.289 --> 00:00:31.190
I was frustrated. I put in the hours, done the

00:00:31.190 --> 00:00:33.850
work and the government was taking well for almost

00:00:33.850 --> 00:00:37.329
half of it really. It got me thinking, there

00:00:37.329 --> 00:00:40.189
has to be a better way. And at that moment, I

00:00:40.189 --> 00:00:43.329
made myself a promise that I would never pay

00:00:43.329 --> 00:00:46.689
more than 20 % tax on my ends again. And from

00:00:46.689 --> 00:00:50.119
that point on, I didn't either really. So, now

00:00:50.119 --> 00:00:52.399
a lot of you who watch this channel are probably

00:00:52.399 --> 00:00:55.460
nodding your heads knowing exactly what I was

00:00:55.460 --> 00:00:59.159
doing, but for those who don't, I'm gonna share

00:00:59.159 --> 00:01:03.159
a bit of a secret. It's completely legal, ethical,

00:01:03.780 --> 00:01:07.219
and encouraged by HMRC as a way for you to keep

00:01:07.219 --> 00:01:10.519
more of your hard earned money and put it to

00:01:10.519 --> 00:01:15.540
work for you. So, it's the promotion problem.

00:01:16.000 --> 00:01:18.859
You might be surprised how many people are in

00:01:18.859 --> 00:01:20.819
the same boat. I've spoken to countless people

00:01:20.819 --> 00:01:23.480
over the years who refuse a promotion because

00:01:23.480 --> 00:01:25.840
they thought that the extra worth load actually

00:01:25.840 --> 00:01:29.120
wasn't worth it. They looked at the higher salary

00:01:29.120 --> 00:01:32.400
and saw that a huge percent of it would just

00:01:32.400 --> 00:01:36.280
vanish in in tacks. So they decided to stay exactly

00:01:36.280 --> 00:01:39.780
where they were. But this isn't about avoiding

00:01:39.780 --> 00:01:43.560
work or skipping promotions. It's not being smart

00:01:43.560 --> 00:01:47.319
with your money. And the key is to unlock in

00:01:47.319 --> 00:01:51.000
your pension. So let me talk about a SIP. A SIP

00:01:51.000 --> 00:01:55.079
is a self -invested personal pension. Now don't

00:01:55.079 --> 00:01:57.659
let the word pension put you off. Think of it

00:01:57.659 --> 00:02:00.459
as a bit of a supercharged savings account that

00:02:00.459 --> 00:02:03.719
comes with a massive government top up. With

00:02:03.719 --> 00:02:06.400
one important proviso, if you're a bit younger,

00:02:06.780 --> 00:02:09.860
you won't be able to access the cash until you

00:02:09.860 --> 00:02:14.819
are 57. So how'd you go and get this tax back?

00:02:14.960 --> 00:02:17.639
Well, I'll walk you through the exact process

00:02:17.639 --> 00:02:21.419
that I kind of went with. And that was, say I

00:02:21.419 --> 00:02:23.620
received a thousand pound bonus from my employer.

00:02:23.860 --> 00:02:25.719
Now, because I was a higher rate taxpayer, they

00:02:25.719 --> 00:02:29.379
take off 40 % of the income tax and handed straight

00:02:29.379 --> 00:02:33.500
to HMRC. Now, so you're left with just £600 less

00:02:33.500 --> 00:02:36.539
NENI and all the deductions they take out. I

00:02:36.539 --> 00:02:39.800
know it's painful, but here's where the magic

00:02:39.800 --> 00:02:42.580
can happen. You can take that £600 from your

00:02:42.580 --> 00:02:45.520
bank accounts and put it into your SIP. Now,

00:02:45.719 --> 00:02:48.580
when you do, your pension provider automatically

00:02:48.580 --> 00:02:53.159
claims back the basic tax relief from HR HMRC,

00:02:53.219 --> 00:02:57.159
which is 20%. And that means HMRC sends 150 pounds

00:02:57.159 --> 00:03:00.180
straight back into your pension pot. So that's

00:03:00.180 --> 00:03:03.360
600 pounds and that was 750. We're not done there.

00:03:03.439 --> 00:03:06.039
As a higher rate tax payer, you're entitled to

00:03:06.039 --> 00:03:08.479
get the extra tax relief. And you get this by

00:03:08.479 --> 00:03:11.979
filling out a self -assessment tax return. And

00:03:11.979 --> 00:03:14.120
don't worry, it's not that scary actually. Once

00:03:14.120 --> 00:03:17.759
you've done that, HMRC sends that remaining tax

00:03:17.759 --> 00:03:22.400
directly to you. or changes your tax code. So

00:03:22.400 --> 00:03:24.680
let's tally it up. We put 600 pounds of your

00:03:24.680 --> 00:03:27.500
money in and in a few months HMRC has topped

00:03:27.500 --> 00:03:30.180
up your pension with that 250 pound and then

00:03:30.180 --> 00:03:33.340
giving you the rest of the tax back on your allowance

00:03:33.340 --> 00:03:35.840
or paying it straight back into your bank. So

00:03:35.840 --> 00:03:40.680
you've got the full 40 % tax back. Now your money.

00:03:41.550 --> 00:03:45.509
has now grown from 600 pound to a thousand pounds

00:03:45.509 --> 00:03:47.870
sitting in an investment account where it's growing

00:03:47.870 --> 00:03:51.909
completely tax -free. So the payoff, now the

00:03:51.909 --> 00:03:56.110
best part, when you retire and start taking money

00:03:56.110 --> 00:03:59.270
out of your SIP, you'll likely be a basic tax

00:03:59.270 --> 00:04:02.409
rate payer, most of us are, and the rules are

00:04:02.409 --> 00:04:05.509
pretty straightforward. You get to take 25 %

00:04:05.509 --> 00:04:09.750
of your tax -free amounts and the remaining 75

00:04:09.750 --> 00:04:12.669
% is then taxed at your current income tax rate

00:04:12.669 --> 00:04:16.509
which for most of us will be 20%. So not only

00:04:16.509 --> 00:04:19.329
did you avoid paying 40 % tax in your working

00:04:19.329 --> 00:04:22.529
life but you also got to take a quarter of it

00:04:22.529 --> 00:04:26.350
completely tax free when you retired and only

00:04:26.350 --> 00:04:29.910
paid 20 % on the rest. So it's a simple powerful

00:04:29.910 --> 00:04:32.879
strategy that lets you keep more of your money

00:04:32.879 --> 00:04:36.519
and build a stronger financial future for yourself.

00:04:38.180 --> 00:04:41.060
Now we've covered the power of the sick, let's

00:04:41.060 --> 00:04:43.220
talk about a different option. Now it might be

00:04:43.220 --> 00:04:45.800
even better for some of you, fact for most of

00:04:45.800 --> 00:04:49.339
you, I think. Putting your bonus directly into

00:04:49.339 --> 00:04:52.860
your workplace pension instead. So why on a SIP

00:04:52.860 --> 00:04:55.939
is great, I've got a SIP, I love it, but your

00:04:55.939 --> 00:04:58.980
workplace pension often comes with fantastic

00:04:58.980 --> 00:05:01.899
benefits you can't get with a SIP, and that's

00:05:01.899 --> 00:05:04.959
employer matching. So what is employer matching?

00:05:05.139 --> 00:05:07.819
Now many companies will match a certain percentage

00:05:07.819 --> 00:05:11.220
of your contributions. For example, your employer

00:05:11.220 --> 00:05:14.420
might contribute an extra 5 % of your salary

00:05:14.420 --> 00:05:19.610
if you contribute 5%. Now by putting... your

00:05:19.610 --> 00:05:21.870
bonus into your workplace pension, you're not

00:05:21.870 --> 00:05:23.670
just getting the tax relief from the government,

00:05:24.170 --> 00:05:26.430
you're also getting money from your employer.

00:05:28.089 --> 00:05:30.810
So let's go back to our thousand pound bonus

00:05:30.810 --> 00:05:34.509
example. If you put that money into SIP, you

00:05:34.509 --> 00:05:37.949
get the government's 40 % tax relief. turning

00:05:37.949 --> 00:05:42.370
your initial £600 back into £1 ,000. But if you

00:05:42.370 --> 00:05:45.009
put it into workplace pension, your employer

00:05:45.009 --> 00:05:48.430
then might add an extra say £50 or even £100

00:05:48.430 --> 00:05:51.269
on top, depending on what their matching policy

00:05:51.269 --> 00:05:55.089
is. Now that's an immediate guaranteed return

00:05:55.089 --> 00:05:57.389
on your investment that you simply can't get

00:05:57.389 --> 00:06:00.470
elsewhere. So let's talk about the difference

00:06:00.470 --> 00:06:03.990
between or compare salary sacrifice versus net

00:06:03.990 --> 00:06:08.089
pay. So how Your word place pension is set up

00:06:08.089 --> 00:06:10.829
also matters. I mean, there's two main methods.

00:06:11.149 --> 00:06:13.389
There's salary sacrifice, and this is the most

00:06:13.389 --> 00:06:17.110
common and often the best option. With salary

00:06:17.110 --> 00:06:20.670
sacrifice, you apply deduct your pension contributions

00:06:20.670 --> 00:06:24.250
before the tax is calculated. This means not

00:06:24.250 --> 00:06:26.689
only do you save on income tax, but you also

00:06:26.689 --> 00:06:29.569
save on national insurance contributions. So

00:06:29.569 --> 00:06:32.110
on a thousand pound bonus, you wouldn't just

00:06:32.110 --> 00:06:35.829
save the 40 % income tax you'd also save national

00:06:35.829 --> 00:06:38.470
insurance contributions which could be an additional

00:06:38.470 --> 00:06:42.730
2%. This is a great advantage over SIP where

00:06:42.730 --> 00:06:46.750
you have to claim the tax back yourself and you

00:06:46.750 --> 00:06:50.689
still pay nicks on gross amounts in a SIP. Now

00:06:50.689 --> 00:06:54.689
in the net pay arrangements your pension contributions

00:06:54.689 --> 00:06:57.730
are taken after tax and your pension provider

00:06:57.730 --> 00:07:02.199
claims their basic 20 % tax for you just like

00:07:02.199 --> 00:07:04.879
a sin. However, highway tax payers still need

00:07:04.879 --> 00:07:07.980
to claim back the extra relief through a self

00:07:07.980 --> 00:07:10.699
-assessment tax return. So it's definitely worth

00:07:10.699 --> 00:07:13.300
asking HR which one you're in, particularly if

00:07:13.300 --> 00:07:16.079
you're paying 40%. So the key takeaway here is

00:07:16.079 --> 00:07:19.519
to check with HR or whoever your company's pension

00:07:19.519 --> 00:07:22.889
provider is to see. how your workplace scheme

00:07:22.889 --> 00:07:26.490
operates. And if they offer employer matching,

00:07:26.550 --> 00:07:29.430
if so what it is, if you can direct your bonus

00:07:29.430 --> 00:07:32.750
into your pension through salary sacrifice, because

00:07:32.750 --> 00:07:35.889
that's generally the most efficient way to maximize

00:07:35.889 --> 00:07:39.189
your money. Getting both the tax and the NIC

00:07:39.189 --> 00:07:42.589
savings along with your employer contributions.

00:07:43.110 --> 00:07:47.290
Win, win, win, isn't it? Now, have you ever used

00:07:47.290 --> 00:07:50.189
a SIP or other tax saving strategies to boost

00:07:50.189 --> 00:07:53.089
your retirement? Then everyone who's watching

00:07:53.089 --> 00:07:54.810
this always looks in the comments and we get

00:07:54.810 --> 00:07:57.029
some great comments in there. So please do comment

00:07:57.029 --> 00:07:58.230
below. Thanks for listening.