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

2sides2everystory

I don't know why but this thread reminds me of the emergency briefing we all get when we fly high - in the unlikely event of a technical problem oxygen masks may drop automatically from above (manna from heaven?) ... pull the mask smartly towards you and place it over your nose and mouth, adjust the elastic strap around your head and continue to breathe normally.

Remember to fit your own mask first before helping others.

I often wonder when real crises have occurred how many 'others' have actually just slipped into unconsciousness and worse unable to fathom their masks (unlike more able or quick-witted fellow passengers) unhelped, unnoticed and relatively unmissed eventually becoming simply a quietly forgotten statistic.

Clearly the OP knows what morality is but with money morality has no place? He sounds exactly like people I have met working for banks.

Nine_Lives

I can't believe we're still discussing the moral rights and wrongs about this topic rather than focusing on factual help for the OP. nobodies mind is going to be changed & we're all going to go round in circles. None of us can change anything by disagreeing on here, so why not just get on with it??

Maybe that's a crazy idea.

tartanterra

I have a guy living over the road from me who is almost 70 but fully active. He lives in a 3 bedroom house on a protected rent, wants for nothing and goes to the pub every night.

The only job he has ever had is a paper round (it did not earn enough to affect his benefits). He has never had a job, never wanted one, and is not ashamed he has lived on benefits his whole life.

The most unusual thing I find about his whole lifestyle is that no one appears outraged by it.
Indeed, people appear to feel sorry for him and leave food at his house or buy him a pint when they see him in the pub.

He has taken from society his whole life and contributed nothing.

Frankly, I can't condemn the OP for doing what he is possibly planning. I myself don't really want to pay my "fair share" if it's going to be squandered on people like my neighbour.

Sapphire

tartanterra wrote: »

I have a guy living over the road from me who is almost 70 but fully active. He lives in a 3 bedroom house on a protected rent, wants for nothing and goes to the pub every night.

The only job he has ever had is a paper round (it did not earn enough to affect his benefits). He has never had a job, never wanted one, and is not ashamed he has lived on benefits his whole life.

The most unusual thing I find about his whole lifestyle is that no one appears outraged by it.
Indeed, people appear to feel sorry for him and leave food at his house or buy him a pint when they see him in the pub.

He has taken from society his whole life and contributed nothing.

Frankly, I can't condemn the OP for doing what he is possibly planning. I myself don't really want to pay my "fair share" if it's going to be squandered on people like my neighbour.

There was a time not so long ago when it was a matter of deep shame for a man not to be employed. There has been a huge change of attitude in many people in society – today there is a massive sense of entitlement among much of the population. This attitude has to be cured – and fast – otherwise we will sink very deeply. Taxpayers simply cannot afford to support so many claims on them.:cool:

BeatTheSystem

I reduced my salary for many years but did not claim any benefits due to my dividends being too high, my whole objective was to eliminate 40% tax and in many years a fair chunk of 20% tax and in a couple of years pay no tax.

The result is that I am in my early 40's with 800K in a SIPP. I am no longer contributing to a pension and paying 20K a year income tax - so doing my share now. I dont mind paying tax now as I feel that a few years of austerity have hopefully secured my retirement. I used the system to my advantage, all above board - hence my moniker.


I dont think what I did was morally wrong since the money diverted from the irresponsible treasury was/is being invested in bonds/shares / commerical property etc which is at least keeping the economy lubricated and although you can argue the rights and wrongs of the OP strategy until the cows comes home at least his invested money will help the economy.

The system is wrong but good luck to the OP.

gadgetmind

BeatTheSystem wrote: »

I dont think what I did was morally wrong since the money diverted from the irresponsible treasury was/is being invested in bonds/shares / commerical property etc which is at least keeping the economy lubricated

Too right. It's everyone's duty to (legally!) pay as little tax as possible as this keeps money working in the local economy.

Whenever I have to write a cheque to the tax man, I can hear the sound of distant flushing toilets, each one packed with £20s and £50s. The OPs explanation of the benefits people can claim has shown me exactly where the money is being flushed to!

I think we need a bonfire of the benefits, and soon.

xylophone

http://www.litrg.org.uk/low-income-workers/tax-credits/tax-credits-advisers/what-is-income

See "notional income" and "income deprivation" which by my reading seem to be what HMRC (?) consider them (in the light of the circumstances) to be.......

BigAunty

These are the HMRC links to help people determine what income to include for the purposes of claiming tax credits, including how to treat pension contributions.

http://www.hmrc.gov.uk/forms/tc825.pdf
http://www.hmrc.gov.uk/taxcredits/start/claiming/income-hours/employment-income.htm

I'd be surprised if high pension contributions would be considered under the deprivation of capital rules. Yes, they are there to prevent people getting rid of their capital in order to maximise their benefit entitlements but the emphasis is try and stop people giving away their properties to relatives, reducing their savings by gifting money to friends and relatives, coming into a lump sum and using it to pay off debts early when there is no legal requirement to do so (for example, paying a chunk off a mortgage or paying a loan off earlier than the contractual redemption period).

jamesd

CSL0183 wrote: »

The £1.5m cap is a hinderance as pension forecasts are showing near enough double that amount ... I'm sure a good accountant/IFA would be able to give me advice on how to beat the £1.5m cap if needs be.

The easiest way to deal with that is to take benefits as soon as you reach 55. The amount of the lifetime allowance used is calculated as a percentage at the time you take benefits. The earlier you take it the lower the percentage used. The investments can grow by an unlimited amount after this, without being tested against the lifetime allowance again. You can also try timing taking benefits with a market downturn to reduce the percentage used further.

You can continue to make new payments into another pension pot, at the same place or another one.

When you take benefits you do need to take the tax free lump sum at that time or lose the chance to take it later. You can use it to make contributions into another pension subject to certain limits that will make it take many years at the sort of amounts you're thinking of.

You can take income from the pension pot and recycle 100% of that into another pension pot, subject to the usual £50k annual cap and lifetime allowance.

If taking benefits at 55 won't do the job you can try making investments in opposite directions inside and outside the pension with the anticipation that the outside speculation is the one that will prevail. Get it wrong and money moves into the pension instead of out of it. Leveraged long and short ETFs are one tool though there are many others. The ETFs have the advantage of qualifying for a S&S ISA so you can move money from tax-advantaged pension subject to income tax to tax-advantaged ISA not subject to income tax. Any reduction in the amount in the pension pot makes it easier to stay under the lifetime allowance limit.

gadgetmind wrote: »

Oh, and you also need to be very aware of Pension Input Periods, which are even more complex!

People should recoil in horror at the thought. Then change theirs to add another £50k that they can put in in the same tax year.

atush wrote: »

We will be making large pension contribs in the near forseeable future, but will not be lowering our income to 12K, (can't with a 50K cap anyway)

You have £50k for the last three years if you were in a pension scheme. If you didn't use it all you can use it this year. This makes it possible to do things like alternate years and pay in £100,000 one year and nothing the next. In the alternate years you can do things like getting 30% tax relief on venture capital trust investments.

atush wrote: »

i dont' see how anyone could comfortably raise children on such a sum.

You can supplement the income from savings. Particularly useful if you alternate years.

xylophone

BigAunty wrote: »

These are the HMRC links to help people determine what income to include for the purposes of claiming tax credits, including how to treat pension contributions.

http://www.hmrc.gov.uk/forms/tc825.pdf
http://www.hmrc.gov.uk/taxcredits/start/claiming/income-hours/employment-income.htm

I'd be surprised if high pension contributions would be considered under the deprivation of capital rules. Yes, they are there to prevent people getting rid of their capital in order to maximise their benefit entitlements but the emphasis is try and stop people giving away their properties to relatives, reducing their savings by gifting money to friends and relatives, coming into a lump sum and using it to pay off debts early when there is no legal requirement to do so (for example, paying a chunk off a mortgage or paying a loan off earlier than the contractual redemption period).

I was think more about deprivation of income The following is from http://www.litrg.org.uk/low-income-workers/tax-credits/tax-credits-advisers/what-is-income

Notional income
Like other categories of tax credit income, notional income is defined by regulations rather than by act of Parliament. Regulations are made by civil servants under a power granted by Parliament (an enabling power).

The enabling power which gives authority for the regulations dealing with notional income is in the Tax Credits Act 2002, section 7(9). It states that for tax credits purposes a person may be treated:

as having income which he does not in fact have; or
as not having income which he does in fact have.

The object is clearly to prevent people from manipulating their income to claim more tax credit than they would otherwise be entitled to.

There are four categories of notional income, as follows.

Certain sums deemed to be income for purposes of income tax. In the tax system, there are so-called anti-avoidance rules which aim to prevent people manipulating their income in order to pay less tax.
Income of which claimants have deprived themselves in order to secure entitlement to tax credits, or to a higher credit (known in social security shorthand as income deprivation).
Income which would become available to claimants if they applied for it.
A reasonable rate of pay where work is done at less than the going rate, and the recipient of the service can afford to pay it. This does not apply where a volunteer works free of charge for a charitable or voluntary organisation."