Question about lump sum payment into pension

zagfles

greenglide wrote: »

The adjustment to your tax code should have increased the amount you can earn before paying tax and raised the HRT threshold accordingly. However the increase in allowance from 818 to 1117 doesn't seem enough to give you that amount?

It gives the correct amount (well very close anyway). £2990 extra tax free income = £1196 saving in tax. Extra 20% (HRT - basic rate) relief on £6k = £1200 less tax due.

greenglide

It does, doesn't it!

I suppose I am not used to seeing the allowance going up and being worth 40% rather than 20% as I have never had the opportunity pay the higher rate:(

kangoora

zagfles wrote: »

It gives the correct amount (well very close anyway). £2990 extra tax free income = £1196 saving in tax. Extra 20% (HRT - basic rate) relief on £6k = £1200 less tax due.

Well, i did a little bit of rounding, the actual grossed up amount was £5,968 (not exactly £6k). Sorry if it caused any confusion.

kangoora

Resurrecting an old thread of mine as I've had another idea I just wanted to check on re. pension payments. Figures are 'rounded' but close to the nearest 0.5k.

DW and I have around £52k in my company shares from an SAYE scheme in two investment accounts, it will take both of our CGT allowance for the next two years (already used this years allowance) to realise the gain without paying tax. We don't really 'need' this money for anything.

Currently I am contributing (with employer conts) £9.5k/year into my pension. In 2015 I was planning on increasing this by another £11.5k via salary sacrifice - effectively also reducing my salary out of HRT, marginally (I'll be around £1k under HRT limit with contributing £21k).

My new thought, is to cash in the company shares up to the CGT limit which will be around £13k/year for the next 4 years. Then use that CGT tax free money for monthly expenditure over the year whilst contributing another £1k/month of net pay using salary sacrifice. This will give me (approximately) a further £16k (£1320/month) into pension, total of around £37k/year which is very close to the annual limit.

I won't get any further extra company contributions or any rebate on the employer NI . Ideally I'm looking at retiring in 5 years so this is my belated attempt to achieve the pension pot I think I'll require. Also, doing it this way allows me to still use my TFLS to pump up DWs pension but still keep some of it in reserve to 'refund' what I'm taking out of our investment accounts.

The above seems to work and appears to gain me an extra £20k or so over 5 years into my pension but I'm just wondering if I'm missing out on any gotcha's I might not be considering.

jamesd

Did you acquire the shares within the last 90 days? I'm asking because transferring to an ISA within 90 days removes the CGT liability for the moved SAYE shares.

kangoora

jamesd wrote: »

Did you acquire the shares within the last 90 days? I'm asking because transferring to an ISA within 90 days removes the CGT liability for the moved SAYE shares.

No, I got them last August and already used the ISA allowance on £15k of them.

jamesd

The tax planning there seems fine. Don't forget that the value of shares can go down, though, so it might be better at some point to sell and take the loss. Alternatively, if your employer permits it, you could buy short options to cover part of a potential loss if there is a price drop.

kangoora

Cheers James, this only occurred to us yesterday when we were discussing funding extra into my pension but seemed a bit obvious so wasn't sure if we were missing something.

wrt the shares, we've umm'ed and aah'ed about maybe selling some for a CGT loss but the shares are in a UK blue chip company that's been performing pretty strongly so think we'll hold for now - we can get 50% of the remaining cash out in April this year also.

Just need to make it happen now