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

danielanthony

Even with the benefits cap at £24000 someone earning £12000 can have their take home income bumped up to a level of someone earning £60000 before tax. That is the real crime, not the OP.

OldBeanz

People work the system at both ends (I guess I mean abuse) whether putting all their earnings through a foreign country or breeding another sprog. I imagine the majority of people always will claim as much as they can or minimise their tax. IDS is working along the right lines but whether it is a step too far as benefits are so complex, we will see in the next few years.

rpc

zagfles wrote: »

Under UC there's quite a big allowance (amount you can earn without any benefit reduction) followed by a 65% withdrawal rate for those who work

The current 41% is bad enough! Add on tax and NI and the effective marginal tax rate is very very high.

We receive tax credits (mainly because of very high childcare costs) and every additional £1 I earn only leaves 27p extra in my pocket. Of course, pensions are allowable against all those deductions so...

If the 65% figure is correct then that gets even worse and only 3p gets taken home for every extra £1 earned. (65p comes off UC, 20p goes on income tax, 12p goes on NI).

It is one of the biggest problems with the current system and the principles that sit under it. If the withdrawal rate is too high, work doesn't pay. Too low and peoples on high incomes receive benefits. You can have a household income of £60k after pensions and still receive tax credits...

zagfles

rpc wrote: »

The current 41% is bad enough! Add on tax and NI and the effective marginal tax rate is very very high.

We receive tax credits (mainly because of very high childcare costs) and every additional £1 I earn only leaves 27p extra in my pocket. Of course, pensions are allowable against all those deductions so...

If the 65% figure is correct then that gets even worse and only 3p gets taken home for every extra £1 earned. (65p comes off UC, 20p goes on income tax, 12p goes on NI).

No - the 65% applies to net earnings, the tax credits 41%applies to gross. It still makes the UC withdrawal a bit higher for basic rate taxpayers, about 76% instead of 73%. But it's a lot lower for those it the bottom end, which for some is 100% now when it'll only be 65% under UC.

It is one of the biggest problems with the current system and the principles that sit under it. If the withdrawal rate is too high, work doesn't pay. Too low and peoples on high incomes receive benefits. You can have a household income of £60k after pensions and still receive tax credits...

Yup. Have 10 disabled kids and you could get tax credits on £200k.

gadgetmind

rpc wrote: »

every additional £1 I earn only leaves 27p extra in my pocket.

Maybe, but what is your overall tax rate? I suspect you're getting a very good deal overall despite this marginal rate.

Many have marginal rates similar to that despite paying tax on all of their earnings.

Reue

I must be missing something here.

Using the tax credit calculator, with 1 child and a couple earning just 5k each a year only gave another £5k credit. Increase to £10k a month each and the credit drops to nothing.

Is the drop-off really that steep?

zagfles

Reue wrote: »

I must be missing something here.

Using the tax credit calculator, with 1 child and a couple earning just 5k each a year only gave another £5k credit. Increase to £10k a month each and the credit drops to nothing.

Is the drop-off really that steep?

Your post makes no sense. The taper is 41% as stated above.

2014

Actually I am really surprised some posters are gob smacked, this sort of question that has been put forward is just what is going on on a grand scale. And has been going on for as back as I can remember.
Do right by all and get penalised
Do wrong and reap the benefits !!

boglehead

CSL0183 wrote: »

Say I am a 28yr old man with a £65k income, are there any legal issues in diverting the maximum allowable £50k into my company pension plan, the maximum £243pm into childcare voucher plan (£2.9k) and living off the remainder £12.1k salary?

I would then declare £12.1k salary to the benefits office/HMRC in order to receive every benefit I would be entitled to on that income? 3 kids would equal a lot of LHA, a lot of child tax credit, a lump of WTC, probably council tax benefit and of course child benefit (Which looks like its going to be taken away in 2013 for higher rate tax payers)

The aim would be to retire at 55 with a very large pension pot. Forget the morals behind it, all I am asking, if its legally possible to do? If so, then surely this is a no brainer option if you can of course afford to live off a 'low' welfare income.

Thanks in advance.

This makes me sick... i pay a marginal tax rate of 47% and the government (along with 99% of the population) openly say i am the enemy, and want to raise that tax rate to 52% to be able to pay benefits to the unfortunate people out there who aren't as lucky as me...
Cut the lazy, loopholes exploiters and fraudsters of this ineffective benefit system - trust me, our deficit will jsut be a bad memory!

You are a disgrace to the people that claim benefits and actually really need them!

atush

Been there, said that, was slammed lol.