large lump sum into pension, tax and any pitfalls to be aware of

tillycat123

My OH was awarded quite a hefty bonus yesterday, he was over the moon till I pointed out a huge chunk is going to the tax man and I need to get the figures just right if he does not want this to happen. I was trying to get his pay just below £100K with a contribution to his pension before the bonus as he earns £112K.

Pay, benefits in kind and nice bonus total roughly £136K.

To have £36K go into his pension I've worked out we physically need to pay £29K, just want to check that's correct first off?

Now if his £29K + what his company pay into the pension totals together just over £40K, are we going to run into any pitfalls? He's physically paid in £500 a month already so £6K through monthly contributions.

Am I going about this the right way?

Many thanks

kidmugsy

tillycat123 wrote: »

… I was trying to get his pay just below £100K with a contribution to his pension ...
Pay, benefits in kind and nice bonus total roughly £136K.
To have £36K go into his pension I've worked out we physically need to pay £29K, just want to check that's correct first off?

YES

tillycat123 wrote: »

Now if his £29K + what his company pay into the pension totals together just over £40K, are we going to run into any pitfalls? He's physically paid in £500 a month already so £6K through monthly contributions.

(i) It's £40k limit next tax year: isn't it still £50k this tax year?
(ii) Anyway, there's a provision to let him carry forward unused allowance from the previous (I think) three years.

Google-time!

zygurat789

tillycat123 wrote: »

My OH was awarded quite a hefty bonus yesterday, he was over the moon till I pointed out a huge chunk is going to the tax man and I need to get the figures just right if he does not want this to happen. I was trying to get his pay just below £100K with a contribution to his pension before the bonus as he earns £112K.

Pay, benefits in kind and nice bonus total roughly £136K.

To have £36K go into his pension I've worked out we physically need to pay £29K, just want to check that's correct first off?

Now if his £29K + what his company pay into the pension totals together just over £40K, are we going to run into any pitfalls? He's physically paid in £500 a month already so £6K through monthly contributions.

Am I going about this the right way?

Many thanks

So does this £6k make his taxable pay for the year £130K? If it does then you only need to pay in £30K or £24K net.

RichandJ

kidmugsy wrote: »

YES



(i) It's £40k limit next tax year: isn't it still £50k this tax year?
(ii) Anyway, there's a provision to let him carry forward unused allowance from the previous (I think) three years.

Google-time!

(i) Yes. Annual Allowance reduces from 6/4/14 to £40k.
(ii) Yes again, but he would need to know Pension Input Amount (PIA) for the last 3 years.

Couple of other things to bear in mind off the top of my head:

First & most importantly, is it a defined contribution or defined benefit scheme and is the Pension Input Period (PIP) aligned with the tax year ? PIA is arrived at differently depending on type of scheme. I.e., for DC, it is simply the aggregate of contributions made ignoring any investment growth, for DB it is the growth in the accrued pension between the start & end of the PIP x 20.*

Secondly, if it is DB, what benefits would OP's OH get for such a contribution and could it be done via salary sacrifice ?

* all these phrases & acronyms aren't my fault, blame HMG or the civil servants who write [STRIKE]this rubbish[/STRIKE] the regs.

tillycat123

Many thanks everyone.

Company not interested in helping staff with tax efficiency, so no salary sacrifice. He's asked, also asked if the bonus could be paid in April not March and told no. Would have preferred to drip such a big amount into the pot rather than all in one go before the end of the tax year.

Its just a group personal pension and the year runs the tax year.

Thanks again!