Is this right?!?

Imelda

Hello all

My husband and I are looking to overhaul our finances.

I earn approx £18k p.a and haven't been contributing to my pension since 2009.

My husband is in the 45% tax bracket and has been maximising his allowance for years. His pot is around £500k and mine £60k.

We are both late thirties.

As my husband will now be hit with the £10k p.a allowance and the fact that our pensions are very unequal he wants us to put my entire salary (plus that for 3 years ago) into my pension in order to take advantage of the 20% tax relief I can get. He wants to do this for the next few years (finances permitting).

A couple of questions:
1. The three year thing - do I need to notify HMRC of my plans/ complete a tax return?

2. The calculators and info I have found online suggest that I can put in my total salary and get 20% relief not just on the bit above my personal tax allowance - in effect giving me more relief than I actually paid in tax. That can't be right?!? Can it?

3. Going forward I will change my contributions through my payroll but I have been told by my HR people that I need to get advice as by doing salary sacrifice I may drop below the NICs level and lose years for SP purposes. I can see this but a lump sum wouldn't affect this, would it? As you don't get NIC rebates/ relief?

Anything else we should consider?

Thank you for your help.

AnotherJoe

Imelda wrote: »

Hello all

My husband and I are looking to overhaul our finances.

I earn approx £18k p.a and haven't been contributing to my pension since 2009.

My husband is in the 45% tax bracket and has been maximising his allowance for years. His pot is around £500k and mine £60k.

We are both late thirties.

As my husband will now be hit with the £10k p.a allowance and the fact that our pensions are very unequal he wants us to put my entire salary (plus that for 3 years ago) into my pension in order to take advantage of the 20% tax relief I can get. He wants to do this for the next few years (finances permitting).

unfortunately you can't do this. You can only take benefit of previous unused allowance if you earn enough in this year to cover it. Your first and most immediate thing is to avoid losing this years allowance you've only got about 2 weeks. You could pay in 80% of your headline earnings so £14,400.

A couple of questions:
1. The three year thing - do I need to notify HMRC of my plans/ complete a tax return?

No but see above , e.g. You can't do it

2. The calculators and info I have found online suggest that I can put in my total salary and get 20% relief not just on the bit above my personal tax allowance - in effect giving me more relief than I actually paid in tax. That can't be right?!? Can it?

You can put in 80% of your actual salary. E.g. If you earn £18k you can pay in £14,400 which then gets bumped up to £18k

3. Going forward I will change my contributions through my payroll but I have been told by my HR people that I need to get advice as by doing salary sacrifice I may drop below the NICs level and lose years for SP purposes. I can see this but a lump sum wouldn't affect this, would it? As you don't get NIC rebates/ relief?

Don't know no doubt someone can comment on this but I do recall reading similar when salary sacrifice is involved

Anything else we should consider?

Thank you for your help.

You need to crack on and not lose this years allowance.

Also, your husband will need to take advice, his pension is almost certain to break the Long Term Allowance and it's quite likely he shouldn't be putting money into a pension any more, but he'd need to take financial advice on the best options.

Suffolk_lass

AnotherJoe, are you sure that they cannot take advantage of the recently introduced married persons transfer rules? If the OP pays her annual salary into her pension she will receive tax relief on all of it, taking her out of income tax.

So - then can't her husband transfer some of his taxable pay to her, up to the taxable pay limit?

AnotherJoe

Suffolk_lass wrote: »

AnotherJoe, are you sure that they cannot take advantage of the recently introduced married persons transfer rules? If the OP pays her annual salary into her pension she will receive tax relief on all of it, taking her out of income tax.

So - then can't her husband transfer some of his taxable pay to her, up to the taxable pay limit?

I thought those transfer rules oniy applied to basic rate taxpayers ? But I could very well be wrong. No doubt an expert will be along shortly.

But i did google this

You can get Marriage Allowance if all the following apply:

you’re married or in a civil partnership
you don’t earn anything or your income is under £11,000
your partner’s income is between £11,001 and £43,000

They would seem to be ruled out on last two points. Or were you referring to something else ?

Imelda

Thanks anotherjoe so I can't use savings to pay the last three years' pension contributions up to the amount I earned?

I have been earning more in previous years.

Linton

There are 2 different limits on putting money into a pension:
1) Earnings Limit - you cant contribute more to a pension that your income in any one tax year. There is no carry forward.
2) £40K limit. You and your employer cant contribute more to your pension than £40K in any one tax year. There is a 3 year carry forward.

So your cunning plan to put n X your salary into a pension doesnt work.

- If you go for salary sacrifice your remaining pay cannot drop below Minimum Wage.
- You dont need to inform HMRC as basic rate tax is handled automatically. HMRC will be informed of your pension contributions by the pension company and they may choose to check whether you have breeched your limits.
- When you put net money into a pension you are automatically given 20% tax relief. So yes you can get relief for tax you havent paid. However if your go for salary sacrifice it's the employer who is paying into your pension, not you, so you dont get the relief for tax you havent paid. Unless you arrange your affairs to avoid it you could be charged tax when you take your pension above the 25% tax free allowance, so its not quite as good a deal as it may seem.

NordicNoir

Imelda wrote: »

3. Going forward I will change my contributions through my payroll but I have been told by my HR people that I need to get advice as by doing salary sacrifice I may drop below the NICs level and lose years for SP purposes. I can see this but a lump sum wouldn't affect this, would it? As you don't get NIC rebates/ relief?

Anything else we should consider?

Thank you for your help.

Another thing to be very careful with is your personal allowance. If you sacrifice your salary so that it is below your personal allowance, you are effectively losing the tax relief on this part (as you will not be paying any tax). In this case it would be better to use a 'relief at source' scheme for any excess (these schemes are allowed to claim back the basic rate relief even if you did not pay any tax!)

Also, you are not allowed to sacrifice if it would take you below the minimum wage.
Edit ..Too slow...did not see Linton's post!

Imelda

Right, so I can put in my full salary this year but not for previous years?

This is why we are bumping up my pension as OH might hit the limit but in any case he is limited now to £10k annual limit.

Imelda

And I can salary sacrifice down to NMW limits?

AnotherJoe

Imelda wrote: »

Right, so I can put in my full salary this year but not for previous years?

This is why we are bumping up my pension as OH might hit the limit but in any case he is limited now to £10k annual limit.

80% of your full salary.

As said, you cannot claim for previous years unless you earn more next year and in your case I presume if you did you'd just put in up to the £40k anyway due to your husbands money.

So the only way you can use your past unused allowance is with this

Imelda

Thanks Joe :rotfl: