[Need advice] Tax avoid for salaryman & my financial status
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Check with your employer what rules they folllow for salary sacrifice it may limit what you can transfer. For instance my employer won’t allow an increase to salary sacrifice percentage for a given month to such an extent that it would put you below the minimum wage for that month.0
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Also you’re not in the same camp as the weathly, what you’re doing the government actively want you to do, ie save for retirement, they have all your data to know you are doing it, you’ll still pay a little tax on it when you come to take it out in your later years. I’m doing the same, I put in a little more to give me a buffer in the tax zone to reduce my dividend tax rate, it’s something I’ve had to wrestle with, deciding to put money away for decades - I’d like to spend it now! Needs to be done or I’ll be skint in my later years.0
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Thanks all members for the replies.
I adjusted a little my calculation (to include company benefit which is taxable), the final figure I should pay to pension to bring down my taxable income is £6000. This is higher than I calculated previously. This mean I have to pay 2x one-off payment of £3000 to my pension to bring down my taxable income to £45k.
But, one-off pension payment of £3000 is more than my monthly salary of £2575.
Considering my monthly salary £2575 is with normal income tax £525 deduction. So, if I made £3000 one-off payment to pension, this shall reduce my income tax also, so I assume I still can afford to make £3000 one-off payment to pension?
Question 1: Do my assumption make sense?
I logged in to Government Portal, there is a "Estimated taxable income" which show £50k+. There is a "Update" link which allow me to update my estimated taxable income.
Question 2: Shall I update my taxable income to £45k so that I can less/no income tax to achieve assumption I mentioned above?
I just called my HR, their first response is to make the payment myself to my company pension. However, I told them I would like to make this one-off-payment by salary sacrifice. They requested me to raise the request by email. I just emailed them, let's see how they respond.0 -
Reckless_Saving wrote: »Also you’re not in the same camp as the weathly, what you’re doing the government actively want you to do, ie save for retirement, they have all your data to know you are doing it, you’ll still pay a little tax on it when you come to take it out in your later years. I’m doing the same, I put in a little more to give me a buffer in the tax zone to reduce my dividend tax rate, it’s something I’ve had to wrestle with, deciding to put money away for decades - I’d like to spend it now! Needs to be done or I’ll be skint in my later years.
Thanks Reckless Saving.
I totally agree with you. :beer:
The government is doing very good job for average salaryman. £45k taxable income allow us to have moderate comfortable life. The government encourage us to save the extra in pension for later life. If you want enjoy luxury life now, then it is reasonable to pay 40% higher tax rate to get extra taxable income. Yes, there will be some tax when you take out the pension. And also, having sufficient pension, allow us to enjoy better retirement, which overall shall save the government money to take care of homeless elders too.
This is lawful tax avoidance method, which the government leave this loophole PURPOSELY to encourage the people to save for their pension. There is a £1M lifetime allowance on pension too. £1M is really a lottery number to an average salaryman, but this is so that the wealthy could not exploit this loophole to escape tax.
In general, I am happy for the government :j , but they should work harder to prevent the wealthy avoid billions of tax paying.0 -
Following my above questions and intention, I successfully made one-off-payment to my pension by salary sacrifice on February salary. I got a few hundreds pound of refund on income tax. However, when I want to make second one-off-payment to my pension by salary sacrifice on March salary, my request was ignored. Apparently my HR is not happy to help me the second one-off-payment to my pension.
While I understand I create unnecessary trouble to payroll, but I have no choice to do it two times because £6k is more than 1 month salary, this is the reason why I have to make 2x one-off payment (on February & March respectively).
I am looking at alternative solutions below.
a) open a new personal pension scheme and invest.
b) call my current pension (Legal & General) and make one-off payment myself.
Based on helpful advice provided by fellow members, if I understand correctly, both solutions above will require me to do paperwork:
If you pay 40% Income Tax
Claim tax relief on the extra 20% in your Self Assessment tax return if you pay Income Tax at the 40% rate. If you don!!!8217;t fill in a tax return, call or write to HMRC.
(Source: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief)
My questions:
a) Because my HR payroll refused to help make one-off-payment to pension, my taxable income is now 48k. To bring down to £45k (20% lower tax band), how much should I pay to personal pension account / one-off-payment to my current Legal & General pension (not by salary sacrifice)? Should I pay in £2.5k or £3k?
If I pay in £3k, I will get 20% 'Relief at source', this will make it £3.6k.
If I pay in £2.5k, I will get 20% 'Relief at source', this will make it £3k.
b) After I call or write to HMRC, how do I get refund? paid to my personal pension? or paid to me by cheque/BACS?
c) Is there benefit to open a personal pension account and make the contribution? (compared to call my current pension, Legal and General, to make one off payment)
d) Since this is one-off tax relief claim for 2017/2018, because I believe this will not happen again in 2018/2019 because my company is having crisis and freeze our salary & bonus, therefore my taxable income will be <£45k. For this reason, I prefer not to do "Self Assessment tax return". What should I write to HMRC? eg. send the evidence that I contributed extra money to personal pension account / one-off-payment to my current Legal & General pension (not by salary sacrifice)?
e) Is there a deadline date I must call or write to HMRC?
f) As above is for tax relief, would I able to get refund for National Insurance also?0 -
starkiwi26 wrote: »........
My questions:
a) Because my HR payroll refused to help make one-off-payment to pension, my taxable income is now 48k. To bring down to £45k (20% lower tax band), how much should I pay to personal pension account / one-off-payment to my current Legal & General pension (not by salary sacrifice)? Should I pay in £2.5k or £3k?
If I pay in £3k, I will get 20% 'Relief at source', this will make it £3.6k.
If I pay in £2.5k, I will get 20% 'Relief at source', this will make it £3k.b) After I call or write to HMRC, how do I get refund? paid to my personal pension? or paid to me by cheque/BACS?c) Is there benefit to open a personal pension account and make the contribution? (compared to call my current pension, Legal and General, to make one off payment)d) Since this is one-off tax relief claim for 2017/2018, because I believe this will not happen again in 2018/2019 because my company is having crisis and freeze our salary & bonus, therefore my taxable income will be <£45k. For this reason, I prefer not to do "Self Assessment tax return". What should I write to HMRC? eg. send the evidence that I contributed extra money to personal pension account / one-off-payment to my current Legal & General pension (not by salary sacrifice)?e) Is there a deadline date I must call or write to HMRC?
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f) As above is for tax relief, would I able to get refund for National Insurance also?0
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