Salary exchange / sacrifice - maximum

chiefie

My employer has just started to give this option. Given I have a Sipp which I can take the TFLS from soon I am thinking of contributing as much as I can for one year until I leave the business. anyone done this and have any lessons ? Trying to convince employer to contribute some of their NIs. Going down to living wage will mean I won’t have to pay my kids maintenance top ups too - which itself saves about £9k. Am I missing something ? I can carry forward some unused pension allowance from last year to cover it being over £40k.

cloud_dog

chiefie wrote: »

Going down to living wage will mean I won!!!8217;t have to pay my kids maintenance top ups too - which itself saves about £9k.

Nice.

chiefie wrote: »

Am I missing something?

Morals?

kidmugsy

Beware of suddenly piling lots onto a pension for one year and then drawing a large tax-free lump sum the next. That could be caught by the Recycling rules. If I remember correctly there's a five year window for recycling penalties: two tax years before the contribution, the year of the contribution, and the two years after. So if you go bonkers this year reckon on not taking your TFLS until 21/22.

Brynsam

kidmugsy wrote: »

Beware of suddenly piling lots onto a pension for one year and then drawing a large tax-free lump sum the next. That could be caught by the Recycling rules. If I remember correctly there's a five year window for recycling penalties: two tax years before the contribution, the year of the contribution, and the two years after. So if you go bonkers this year reckon on not taking your TFLS until 21/22.

If OP means putting lots into the SIPP before drawing any tax free cash, and that's the way I read the question, then it won't be classed as recycling because the increase in contributions isn't a consequence of taking the tax free lump sum.

OP is only going to do this 'for a year until I leave the business'. If the tax free cash post dates the contributions, then surely the key condition that the contribution increase must be because of the tax free lump sum payment rather than any other reason doesn't apply?

chiefie

Morals?[/QUOTE]
It’s funny you should say that. I wasn’t keen but my kids are both insistent that they don’t want me to pay their top up. One has a job so I don’t need to for them but I put it away for them anyway.

kidmugsy

Brynsam wrote: »

If OP means putting lots into the SIPP before drawing any tax free cash, and that's the way I read the question, then it won't be classed as recycling because the increase in contributions isn't a consequence of taking the tax free lump sum.

HMRC is allowed to draw a different conclusion. The rules, when last I looked at them, were pretty explicit on that point. (Whether it ever really does persecute anyone under these rules I don't know.) I dare say that the OP could defend himself by pointing to the novelty of the salary sacrifice opportunity, in which case maybe he'd be wise to print out some evidence.

Brynsam wrote: »

OP is only going to do this 'for a year until I leave the business'. If the tax free cash post dates the contributions, then surely the key condition that the contribution increase must be because of the tax free lump sum payment rather than any other reason doesn't apply?

I fear you are making the common mistake of assuming that the taxman is a mug.

Brynsam

kidmugsy wrote: »

HMRC is allowed to draw a different conclusion. The rules, when last I looked at them, were pretty explicit on that point. (Whether it ever really does persecute anyone under these rules I don't know.) I dare say that the OP could defend himself by pointing to the novelty of the salary sacrifice opportunity, in which case maybe he'd be wise to print out some evidence.



I fear you are making the common mistake of assuming that the taxman is a mug.

No - I was looking at the pensions tax manual, specifically:

An individual might pay significantly greater contributions as part of normal retirement planning and might simply fund those contributions from the sale of investments, deductions from salary, salary sacrifice, redundancy sacrifice or from existing savings. A pension commencement lump sum might be an integral aspect of the increased contributions in that one of the reasons for increasing contributions is to receive a larger lump sum. The recycling rule will not apply in these circumstances unless the individual intended to use that pension commencement lump sum as the means of making those increased contributions, whether in a direct or indirect way. [my underlining]

kidmugsy

Brynsam wrote: »

... unless the individual intended to use that pension commencement lump sum as the means of making those increased contributions, whether in a direct or indirect way.

But how is the OP to demonstrate that he didn't intend to use it in an indirect way? Money is fungible after all.