Topping up Pension before Moving Abroad

A_Kay

My husband and I will be moving out to Dubai later this year due to his job relocation, with the current plan being for me to follow him over after finishing my job at the end of May.

As I’ll be leaving part-way through the tax year I wanted to check whether the sensible approach would be to use some of our existing cash savings to contribute to my pension before I leave so that I’ll effectively be sacrificing 100% of my earnings from April/May 2017?

I’ll also be filling out a P85 before leaving which will hopefully return any tax paid as I’ll be under the personal allowance threshold – am I right in thinking this wouldn’t have any bearings on the contribution strategy at all?

bowlhead99

Yes it can be a good thing to do from a tax perspective because if you tell HMRC you're leaving and obtain split year treatment for 2017/18, you are effectively only tax resident two months but get an entire year's annual personal allowance so may not be paying any tax at all. Yet you can still get tax relief on your full earned income by paying it into a personal pension getting tax relief at source. You can contribute the gross amount of your entire earned income for the two months, or £3600 if higher.

As your pension contribution allowance and ISA allowance for example are not prorated down to 2/12ths of the maximums that the rest of us will get for being here all year (i.e. £40k and £20k respectively), you have a lot of flexibility on what you do with your money.

Just on a piece of terminology, you say effectively you are 'sacrificing' all your salary. Effectively yes you are sacrificing or giving up the net pay, but generally on this board people would refer to 'salary sacrifice' as a specific perk offered by their employer where they take a lower salary in exchange for bigger company pension contributions. You wouldn't be able to sacrifice 100% of your salary that way because then you'd be working for less than minimum wage. What you mean is, just contribute 100% of your net pay to a pension, right?

Anyway in principle yes the above works.

However, there are plenty of horror stories about people relocating for a dream job in the middle east and looking forward to lots of tax free earnings, then finding out that the region has a terrible human rights record and hardly anything in the way of workers rights. You can get in a pickle when your employer abruptly terminates your job, tells the authorities you are no longer employed by them so your visa is invalid and your bank account (predicated on you having a job) is frozen. Then, owing the remaining half year rent on your leased apartment and no means to stay in the country, you make a run for it however best you can - abandoning your rented flat and leaving your car at the airport. Source: anecdotes from friends / acquaintances who have been there done that and don't want the tshirt as a reminder.

This is not to say that will happen to you as part of your husband's job being relocated with an entirely reputable employer. However, whether you need an 'emergency fund' , or simply a savings fund in pounds for when you come back at some point and need tide-me-over money before you get another job, you might not be best to put every last penny of your last months' wages into a pension that can't be accessed for a few decades.

Of course, you might have tens of thousands of ready cash for all we know, and the April / May earnings really just be pocket change and totally spare to put into the pension for max tax relief.