Potential New flat rate relief and Salary Sacrafice

SpeedSouth

Hi,

Just thinking on how would this work if they apply a flat rate of relief across the board?

I use salary sacrifice at present, part of this is HR some of it is BR, so on the amount over the BR I still in effect get 40% relief I'd assume as I wouldn't be taxed at source?

But for the amount getting taxed at 20% would this then be bumped up in the pension fund if for example 30% flat rate was applied?

Thanks

AlwaysLearnin

Nice thought, but I'm guessing more than pretty optimistic...

jamesd

Salary sacrifice is a pension contribution from the employer, not you. The employer doesn't pay basic rate income tax and there's no particular reason to expect that they would be granted any increase in basic rate tax range pension relief on their contributions to your pension.

The employee and possible shared employer NI provide more boost to the pension or income level than the usually proposed increase in basic rate income tax relief for pension contributions.

PensionTech

Sadly not - the policymakers will have thought of this and will ensure that they don't leave such a gaping loophole. Salary sacrifice is already very much on the radar. Any change to flat rate will ensure that it works with salary sacrifice (or salary sacrifice will be scrapped altogether - which I think is more likely).

PensionTech

Salary sacrifice is a pension contribution from the employer, not you. The employer doesn't pay basic rate income tax and there's no particular reason to expect that they would be granted any increase in basic rate tax range pension relief on their contributions to your pension.

Can you explain what you mean by this? Salary sacrifice contributions, and normal employer contributions generally, effectively receive tax relief at the employee's marginal rate by virtue of not being paid as taxable income or included as a taxable benefit when working out the employee's tax code. A flat rate would surely have to be applied to employer contributions as well - otherwise there would be a disadvantage to BR taxpayers of having their employer contribute vs taking it as salary and paying employee contributions, and an advantage to HR taxpayers of the same thing.

SpeedSouth

Oh right so completely not understood that then. So no relief is factored in at all?

If I sacrifice £5,000 (at HRT) of my salary for example, £5,000 would hit my pension account would it not? (Plus of course and employer contributions) If I'd not sacrificed this I would have been taxed at 40% on this so taking £3,000.

In effect though going forward you'll still get 40% as you were never taxed on it?

Is that right?

SpeedSouth

PensionTech wrote: »

Can you explain what you mean by this? Salary sacrifice contributions, and normal employer contributions generally, effectively receive tax relief at the employee's marginal rate by virtue of not being paid as taxable income or included as a taxable benefit when working out the employee's tax code. A flat rate would surely have to be applied to employer contributions as well - otherwise there would be a disadvantage to BR taxpayers of having their employer contribute vs taking it as salary and paying employee contributions, and an advantage to HR taxpayers of the same thing.

Reading this one after I typed my other post..

If we take the same £5,000 example at HRT if relief is capped at 30% then of that £5,000 only £4,500 will hit my pension are you saying? In effect I'll be charged 10% tax on that contribution

PensionTech

I would think that £5000 would go into your pension but the cost to you would be £3500 (through some adjustment to your tax code, perhaps). But jamesd is not a newbie on these forums, as you can see, so I'm being cautious until I can understand how his comment ties up with this.

bigadaj

The problem is everyone is speculating, it's all what's and ifs.

The debate can carry on, but until the government confirms what they are proposing to do, if anything, then no one can say for certain.

greenglide

The problem is that Salary Sacrifice is simply a drawing the line between Employer and Employee contributions.

The old non-contributory schemes were effectively salary sacrifice. The very reason salary sacrifice is allowed is because it is just changing the border between employer and employee contributions and allowing an employee choice of the amounts to be sacrificed.

Removing Salary Sacrifice would have to somehow limit the employer / employee split (impose a 50 / 50 employer / employee split?).

Salary Sacrifice will always effectively give relief at the highest rate, it would be difficult to stop this.

One this is certain, the politicians / civil servants will make a huge mess of this, it is complicated.

April next year at the earliest, IMHO. It will make no difference to me by then:)

PensionTech

Salary Sacrifice will always effectively give relief at the highest rate, it would be difficult to stop this

Not really - the pension contribution (including the ER contribution, as I think would be necessary) could just be a taxable benefit (or partially taxable benefit depending on how you want to apply the flat rate relief). Either it could be put through the payroll as part of the gross earnings and then deducted at the end, so that tax and NI gets charged on it (this is what used to happen to my medical cover), or it would be entered on the P11D and the tax code for the next year adjusted accordingly. Any flat-rate relief, rebate or whatever could then be claimed by the provider.