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What should I do with a bonus?

A bonus is taxed as pay, with income tax and National Insurance.

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If your employer offers bonus sacrifice, some or all of it can be paid into your pension with no income tax or National Insurance on that part. Above £100,000 of adjusted net income, a bonus also reduces your personal allowance.

The advisers for this subject: Sunny Bharj and Tony Springer

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Bonus sacrifice into a pension

You give up the right to the bonus and your employer pays the amount into your pension. HMRC treats this as a salary sacrifice, and it works only if you agree it before you become entitled to the bonus. Ask your employer whether it offers one and by what date.

No income tax or National Insurance is paid on the sacrificed amount today. From 6 April 2029 only the first £2,000 a year of pension contributions made through salary sacrifice stays free of National Insurance. What is changing with pension salary sacrifice in 2029?

Where your employer does not offer it, you can pay into a pension yourself from the bonus after tax. Your provider adds basic rate relief, and you claim higher or additional rate relief through Self Assessment.

Income over £100,000

Personal allowance
Falls by £1 for every £2 of adjusted net income above £100,000, and is nil at £125,140.
Tax-Free Childcare
You cannot claim it if you or your partner expect adjusted net income over £100,000 for the tax year.
Child Benefit
The High Income Child Benefit Charge applies to adjusted net income above £60,000.
Pension contributions
Contributions with relief at source come off adjusted net income at their grossed-up amount, so £1 paid reduces it by £1.25. Gift Aid donations count the same way. A bonus you sacrifice is never paid to you, so it is not part of your income.
Pension allowance above £200,000
Where threshold income is over £200,000 and adjusted income over £260,000, the £60,000 annual allowance falls by £1 for every £2 above £260,000, to no less than £10,000.

The rest of the bonus

The right to the cash has to be given up before you are entitled to receive it.

Related questions

Is a bonus taxed at a higher rate?

No separate rate applies. A bonus is added to your income for the year and taxed at the rates that apply to that income, so it can take part of your income into a higher band.

Can I put my whole bonus into my pension?

Where your employer offers bonus sacrifice, you can sacrifice up to your annual allowance, including any you can carry forward from the previous three tax years. The sacrifice has to be agreed before you are entitled to the bonus.

How do I keep my income under £100,000?

Pension contributions and Gift Aid donations reduce adjusted net income, and a sacrificed bonus is never counted as income. Each £1 paid through relief at source reduces it by £1.25.

Does a bonus count toward the £100,000?

Yes. A bonus paid to you is part of your adjusted net income for the tax year it is paid in, alongside your salary and other taxable income.

Where this fits

Bring your payslip and the date your employer needs a bonus sacrifice decision by.

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The advisers for this subject

Sunny Bharj

Sunny Bharj

Independent Financial Adviser

Tony Springer

Tony Springer

Independent Financial Adviser

Advising through Equity & General Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority. Check the firm on the FCA register under number 474163.

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