"Bed & Breakfasting"

Chris_Johns

I understand Gordon Browns recent alterations to the rules from "A day" have given the opportunity (until April) for one to "take" a Private Pension (with 25% lump sum) & then reinvest it to advantage.
Can anyone advise the details, or post a link to a good explanation?

EdInvestor

The Chancellor has already announced that this loophole is to be closed.

dunstonh

It has been possible to do that for as long as I can remember, with annuity purchase on the remaining 75% and AFAIA, will remain possible to do that after A day where an annuity is purchased with the 75% remaining in the fund. Its when one of the alternative methods was used that it will no longer be possbile.

Cook_County

The most fashionable tax planning right now to beat the Chancellor's proposal is to pay the maximum in one lump sum(since most people earn below £215,000, this will be 25% x 78% of the expected annual earnings), then take the 25% back tax-free.

Given that most folks don't have sufficient cash on hand equal to 25% x 78% of their annual pay a loan will be needed equal to that amount. The loan would be repaid out of the tax-free lump sum and once the interest for a few days or weeks is paid off the only person to lose out will be Gordon Brown.

I expect quite a few of these loan schemes will be promoted and sold from A day.

dunstonh

As income for children/working tax credits is treated as income minus pension contributions, if you were to pay a single amount 100% of your income into a pension, you would be a zero earner and therefore be able to collect around £7000 of tax credits for that tax year.

No mention on that loophole being closed yet.

Cook_County

I agree, substantial tax credit refunds are available (including pensions credit for those of appropriate age!) if sizeable contributions are made. SIPP and spouse will almost certainly still work under the Chancellor's new proposals too if both spouses have sufficient earnings...

caveat_emptor

dunstonh wrote:

if you were to pay a single amount 100% of your income into a pension, you would be a zero earner and therefore be able to collect around £7000 of tax credits for that tax year.

Is there not a cap on the proportion of income to be paid as pension contributions according to age?

Cook_County

We are talking about after A day when it will be possible to pay 100% of earnings and thus gain a tax-free lump sum and several thousand pounds of tax credits.

The advice will be most useful to high earners, exactly the kind of clients that IFAs love!

EdInvestor

Cook_County wrote:

The advice will be most useful to high earners, exactly the kind of clients that IFAs love!

I think it's fairly obvious that most IFAs are not really interested in normal people as they don't generate high enough fees.

MSEs should think themselves lucky there are a few contributing here for nothing.

:idea:What a pity the system isn't arranged to help the vast majority of the public. Don't hold your breath that anything will change,guys. :rolleyes: