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

michaels

I got a 'small' amount of vitriol for having the same conversation a few years - I will do a search when I have time - I was proposing running a bi-annual scheme so that year 1 I would earn more and save a fair bit to see me through year 2 when I would put as much as possible in to the pension to maximize benefits and repeating whilst using some savings from year 1 although obviously savings are an issue for benefits liek council tax and Housing benefit although as a homeowner I didn't think I coud get the latter and I also have savings already that would disqualify me from both anyway.

Would be interested to hear more about what you find out although I think PM may be safer before the thread garners too much opprobrium. I also think that you have to make sure you get more than minimum wage.

CSL0183

corbyboy wrote: »

Can't help you with the other stuff but with the childcare element of tax credits you can only get help on the "cash" amounts. You have to take away the amount you get in vouchers.

Yep, I had taken that into consideration, its actually around £1250pm for 2 kids in nursery part time. Less childcare vouchers £243 leaving £1k leftover to fund from my own pocket.

Bigsmak

CSL0183 wrote: »

My salary is £65k, pension contributions of £50k, salary is higher.

Are you suggesting I cant pay more into a pension than I draw in a salary? So best possible outcome is a 50/50 split which would be a £32.5k split? I have never read anything relating to that, can you point me to your source of this information? In any case as I salary sacrifice, my income is not £65k, it's whatever I want it to be, i.e £12.1k or whatever minimum wage is if needs be;)

For example as it stands at the moment, my salary is £65k - £4900 pension (7.5%) - £2900 childcare vouchers = £58,200. My plan is just to play with that pension part to read £50k

Spot on.. You cannot pay more in than you declare as Salary..

If you are serious about this I would probably look at dipping your toe just over the 40% taxation mark as you will be given the initial %25 uplift to your pension but be able to claim 20% back on the rest of of your Pension contribution when you fill in your tax return at the end of the year.

Source for 50% - http://www.hmrc.gov.uk/incometax/relief-pension.htm#4

Limits on tax relief
You can save as much as you like into any number and type of registered pension schemes and get tax relief on contributions of up to 100 per cent of your earnings (salary and other earned income) each year, provided you paid the contribution before age 75.

Read the rest of the stuff on that page..

EDIT -

re-reading, I actually can't see a reason why you can't pay in more than 50k.. it looks like it is the barrier to the tax relief.. If this is so, then you would be better off maxing your ISA out for that year and investing elsewhere with the rest.. so 50k would still be a limit for you. Taxation speaking. But you still can't pay in more than you declare in 'all earnings'

besti

This just goes to show that if taxes are increased the actual tax revieved goes down because people decide "enough is enough". I may look in to this myself because I run my own company and my compnay can make the contributions for me. Nice one!!

brasso

shadydaz wrote: »

...and it has got to be the most selfish post I have ever read on this forum.

We are all driven by self interest, but at what point does self interest become selfishness? Hard to say. and most of us will tend to do what we can to further our own interests as long as it is legal.

From what I can see the OP is asking an intriguing question. An experienced accountant will save the average self-employed person thousands by using similar tactics.

Morality? Well, we tend to pick and choose what bits of "immorality" we like and don't like on a pretty arbitrary basis. I suspect that some of the antipathy towards the OP might just be resentment that he/she has more money than most of us.

Bigsmak

besti wrote: »

This just goes to show that if taxes are increased the actual tax revieved goes down because people decide "enough is enough". I may look in to this myself because I run my own company and my compnay can make the contributions for me. Nice one!!

There is nothing wrong with setting up a 'Salary Sacrifice' scheme.. All perfectly legal..

Basically your pension contributions are paid before it becomes salary.. The company saves because you don't pay NI contributions on this as it was never salary..

A good IFA can set this up for you.... (really worthwhile doing if you ask me)

atush

I don't htink it is jealousy at all (our family income is higher). And to save tax, I think it is a great idea, I am all for (legally) saving on tax.

I guess it was the collecting of benefits meant for working poor such as tax credits etc. Lowering your income below the HRT band and keeping the child benefit is entirely different (as we all started getting this as a universal benefit- and it was meant to replace a tax relief for each child that you get in other countries).

But if it is legal, and you are OK with it- who is to say? we personally are planning huge hikes in pension contribs in the final years running up to retirement, but I can't see us applying for any benefits.

For instance, if I was a well off pensioner now, I would be one donating my winter fuel payment to a charity for those struggling paying for their heat.

Bigsmak

atush wrote: »

? we personally are planning huge hikes in pension contribs in the final years running up to retirement, but I can't see us applying for any benefits.

.

You actually would be better paying more into a pension now with many years to retirement than putting a lot in at the end. Its basic compounding theory and the tax relief added gives you a huge advantage to other investments. The problem with sticking it all in at the end is you are not giving it a chance to grow.

atush

We have twins starting Uni so will have to wait til their final year (unless I sell my house and downsize). We do increase each year.

Bigsmak

atush wrote: »

We have twins starting Uni so will have to wait til their final year (unless I sell my house and downsize). We do increase each year.

Bloodsucking University Children....... lol

:beer: