Diverting £50k of salary into pension fund to claim welfare benefits

gadgetmind

shadydaz wrote: »

If you earn £65k pa, then you can only sacrific up to £21k pa, as the limit is current £44k pa. It would stop this kind of loophole from occuring for a start.

So, someone earning £45kpa should only be allowed to put £1kpa into a pension? I hope they enjoy eating cold beans.

SteveV2

What happens if you die 2 years after you retire? How much would you family lose out on? Apart from all those years while you could have lived very well. Had everything.

Would be nothing worse than paying in all that and then die.

What you gonna do with the pension anyway? Did I read that for every £100k you get £5k a year? So would that mean you'd get £90k a year? Ouch! Big tax on that?

Would you still get state pension if it all went to plan?

xylophone

HMRC administer tax relief on pensions.
HMRC administer tax credits.
Would questions not be asked?
http://www.hmrc.gov.uk/taxcredits/start/who-qualifies/what-are-taxcredits.htm
http://www.hmrc.gov.uk/incometax/relief-pension.htm
http://www.hmrc.gov.uk/specialist/salary_sacrifice.pdf

oneacourt

There was an article in the Sunday Times a couple of months ago that described a similar setup.

gadgetmind

SteveV2 wrote: »

What happens if you die 2 years after you retire? How much would you family lose out on?

Assuming drawdown or an annuity with 100% spouse cover, then nothing.

What you gonna do with the pension anyway? Did I read that for every £100k you get £5k a year? So would that mean you'd get £90k a year? Ouch! Big tax on that?

25% would come out tax free, which helps, and the lifetime allowance is now only £1.5m, so only £56kpa after 25% PCLS but before tax.

Would you still get state pension if it all went to plan?

He'd still be paying National Insurance, so yes.

gadgetmind

xylophone wrote: »

Would questions not be asked?

Question: Have you told the truth and followed all the rules?
Answer: Yes.
Conclusion: You poor soul, here is more money than most 9-5 working Joes can ever dream of earning. If you run out, come back and we'll see about some hardship money.

Or something like that.

shadydaz

gadgetmind wrote: »

So, someone earning £45kpa should only be allowed to put £1kpa into a pension? I hope they enjoy eating cold beans.

Semantics- would be relative to additional sacrafice contributions above minimum required. Does a comment need to have holes picked in it for the sake of picking? Pick the bone sout of this...

All that said, there should not be such a massive step in taxation banding, it should be more progressive and incrimental. 20% tax up to 40k then an additional .5% for every £1k earned, increment limit set at 50% over £100k. Personal allowance of £10k pa. Flat rate NI @12% after personal allowance. No sponging allowed over £40k pa. Optional/additional salary sacrifice schemes cannot be offset by additional benifit. NO CHILD BENIFIT, NO HOUSING BENIFIT, NO CHILDCARE CREDIT. Only one flat rate "TOP UP" benifit that would push gross family incomes up to a proportionate amount relative to number of children (benifit payble capped at three children) to a £40k pa cut off. No single person allowance (childcare not required).

Incremental reduction of whatever benifits over time for those who choose not to work, including mums whose children are old enough to go to school.

No beans required, just work ethic and acceptance that tax is tax, theorism is a wonderful thing.

I await the backlash...

gadgetmind

shadydaz wrote: »

Semantics- would be relative to additional sacrafice contributions above minimum required.

Minimum required?

All that said, there should not be such a massive step in taxation banding

Trigger points are bad but rare.

increment limit set at 50% over £100k.

Too high, but I guess you knew that already.

Personal allowance of £10k pa.

Even for those nasty people on >£100k?

Flat rate NI @12% after personal allowance.

Ah, so effective 62% tax after £100k.

No beans required, just work ethic and acceptance that tax is tax,

And too much tax (which includes your 62%) is counter-productive as we're seeing with the OP. People get to breaking point and either find creative solutions or leave in search of greener pastures.

I await the backlash...

As your taxation policies will ensure that you'll never be in a position to impose them on anyone, who cares?

thorsoak

CSL0183 wrote: »

The government are planning on taking £2500 away from me because I am a higher rate taxpayer. £2500pa is £208pm so its not small change (It is useful as it currently pays the council tax/BT phone bill and Internet)

I am not asking about the morals of doing so, just the legalities. If it is legal it cannot be classed as benefit fraud. Believe me, I dont want to go down the path of committing fraud.

I have just been doing the maths and with a £12k income I am entitled to a hell of a lot of benefits (3 kids), I wouldnt need to worry about loss of child benefit, LHA amounts are reasonable for rent, council tax would be minimal and most importantly I would be entitled to generous child tax credit payments aswell as the childcare element of tax credits for funding nursery payments. (Currently something I have to do myself 100%, well less childcare vouchers)

£65k with my normal 7.5% pension contribution and the £243pm childcare voucher gives me around £3300 per month + £208pm child benefit. As this £208pm is going to be taken away from me, my income falls to just my salary of £3300pm.

Therefore, I need to do my maths to try and make up this £3300pm.

Income = £12k salary (£877pm)
Child tax credits = £2,555 x 3 + £545 = £8210pa/12 = (£684pm)
Working tax credits = £2,740 / 12 = (£228pm)
LHA entitlement 3 bed house = £750pm
CT band D = £165pm

I know I would receive full CTC but not 100% sure on how much of the WTC/LHA and CT discount I would receive on a declared income of £12k but I would say probably around 75% of those costs so around £860pm. Then there is childcare, currently costs me around £1k per month to which I would get 70% paid for me so £700pm

Adding all those figures up and of course these are just very rough estimates, I make that out to be around £3100pm. £3100 vs £3300 is no real drop in standard of living but yet I am putting away £55.2k into my pension fund each year (£50k self, £5.2k company(8%) ) £55.2k rising with inflation each year for the next 30yrs or so will give me a pension pot in the millions and allow me to retire early at 55.

I am seriously seriously tempted and this has all come about at ways of trying to keep hold of my child benefit. I was just going to contribute more into my pension to take me under the £43k limit but that didnt make sense as I couldnt make anything back from the welfare state for my efforts. Someone mentioned, why I didnt just go the full hog and then that got me thinking.

I know this post will annoy many hundreds of you but I simply do not care, if this is legal, I shall be reviewing those figures above in a lot more depth. Even if it came to within £500-£700pm of what my income is now then it would be worth it retiring at 55 with a nest egg in the millions.

If what you state is correct, then it is morally wrong, although it might be legal. This anomoly must be corrected. For this reason, I have copied this posting to my MP, and have asked him to put it before the Ministers responsible for HMRC and DWP.

"From each, according to his means, to each, according to their needs"

brasso

Gracchus_Babeuf wrote: »

It's a clever scam, granted, but the loophole will be closed - you can be sure of that. This allows the wealthy to claim benefits and there is no way any government could allow it.

Interested to know how a 28 year old can earn £65k - he must be a high flying lawyer or accountant I guess.

It isn't a "scam." It's playing within the rules.

It's quite easy for a 28 year old to earn 65K. Must admit I didn't earn that till I was late 40s, having wasted too much time in the Civil Service when I was younger. But in the commercial world, a good salesman can easily earn that and more at any age. Also, decent IT specialists, project managers etc, particularly those who work as contractors, can easily earn that.