Annual allowance to be reduced to £10000

fizio

phew - i am over the limit this tax year (due to some special circumstances) so very pleased to see the 150k threshold takes effect from april next year when I will be back to below 150k

there were also rumours of getting rid of salary sacrifice but not seen any mention of that

JezR

In the budget documents there is mention on monitoring the impact of salary sacrifice on tax and NI receipts so its time might be numbered in its present form.

BoxerfanUK

haf63 wrote: »

there were also rumours of getting rid of salary sacrifice but not seen any mention of that

https://forums.moneysavingexpert.com/discussion/5282892

colesy

So it's not a reduction in the contributions limits but a reduction in the extent to which those contributions are tax relieved? Is that correct? I suspect VCT's might become far more popular soon.

Paul_Herring

colesy wrote: »

So it's not a reduction in the contributions limits but a reduction in the extent to which those contributions are tax relieved?

It is, realistically, a reduction in the limit, since most people don't want to go over that limit for the simple reason that anything over that limit is taxed going into the pension fund, then eventually taxed again on the way out.


If you're earning < £40,000 a year, then that limit is your gross wage.

If you're earning £40,000-£150,000, then that limit is £40,000.

Between £150,000 and £210,000, then it's a sliding scale where that limit drops £1000 for every £2000 over £150,000 you are.

If you're earning over £150,000, that limit is £10,000.

If you go over whatever your own personal limit is, you pay income tax at your marginal rate on the excess (essentially as if you earned it.)

So, there's no technical reason preventing you from contributing more, but (unless you're salary-sacrificing to get the NI benefit,) you won't benefit by very much - you might just as well stick what would be the extra in a S&S ISA invested in the same funds as your pension fund for all the difference it would make.

gadgetmind

hugheskevi wrote: »

There is a £80,000 Annual Allowance for the first mini tax-year, of which up to £40,000 can be carried into the second mini tax-year.

Hmmm, so in my case of paying in £40k/12 to use my current allowance, I've put in just over £10k across three payments into my tax-year aligned PIP scheme. Does this mean that I have an allowance of £40k (partial carry forwards of unused £80k) for the rest of the tax year?

hugheskevi

Hmmm, so in my case of paying in £40k/12 to use my current allowance, I've put in just over £10k across three payments into my tax-year aligned PIP scheme. Does this mean that I have an allowance of £40k (partial carry forwards of unused £80k) for the rest of the tax year?

That is my understanding of the rule - for most people, it will mean pension inputs between 6 April and 8th July don't count for Annual Allowance purposes (unless they contributed more than £40,000 in that period) and then they have a standard £40,000 for the rest of the year.

tillycat123

What I don't think has been made clear is that the £150k is made up of pay p11d perks, company pension contributions and your own contributions.
So realistically if your basic pay before any of those additions is below £100k you could also be caught out by going over the £150k once you factor in what your company pays into your pot and your own contributions plus the company car and healthcare.

Or have I misunderstood?

bowlhead99

Yes, the £150k income tax threshold includes all types of income you get taxed on and as the intention is to restrict people with big incomes having big pension contributions, the relevant figure is grossed up for pension contributions made direct from your employer and your own contributions etc.

They have however specifically said that if your pay is £110k or less they won't stop you putting £40k gross into a pension even if your overall comp goes over £150k which could otherwise have restricted you to less than £40k. So presumably if your basic pay is £99k and you have £60k of benefits on top (including pensions) you are still allowed the full £40k of gross pension contributions.

However as an anti-forestalling measure now the new rules are out, if employment income is given up for pension provision in a new salary sacrifice arrangement to knock your basic pay back down to that level, they will add it back to determine whether the £110k level has been breached (this from a Deloitte article I saw, rather than the core regulations)

zagfles

hugheskevi wrote: »

That is my understanding of the rule - for most people, it will mean pension inputs between 6 April and 8th July don't count for Annual Allowance purposes (unless they contributed more than £40,000 in that period) and then they have a standard £40,000 for the rest of the year.

It also seems to imply that the remainder of the £80,000 from the pre-budget mini-tax year can be carried forwards (without the max £40k proviso) to the next 3 tax years! Surely not? Have I misunderstood?

For 3 tax years after 2015 to 2016, carry forward will be available as follows:

• for 2016 to 2017 from 2013 to 2014, 2014 to 2015 and the pre-alignment tax year
• for 2017 to 2018 from 2014 to 2015, the pre-alignment tax year and 2016 to 2017
• for 2018- to 2019 from the pre-alignment tax year, 2016 to 2017 and 2017 to 2018

No mention of £40k limit for c/f, as there is for the post-budget tax year this year.

This would mean someone who has a tax year aligned PIP, who has contributed the max allowed in the last few tax years, and has put in £10k between 6 April and 8 July this year, would be able to contribute:

• £40k for 9 July 2015 to 5 April 2016 (max £40k c/f from pre-budget mini tax year)
• £70k in the 2016/17 tax year (£40k plus £30k remainder carried fowards from pre-budget tax year)

Is this right? Surely not?