Salary Sacrifice to lower tax bracket?

Joey_Soap

A terrific illustration of why the UK tax and benefit system is terminally broken. It should not be possible to game the system to get tax or benefit advantage. The system is broken, it's unfit for purpose. Sadly, nobody has the appetiie to change it to something far more sensible. Meantime - Fill your boots. It'd be daft not to.

griffinsaver26

Agree Joey. Totally legitimate coming from the government, not some big tax avoidance scheme, but does show how totally broken the system is. 

cloud_dog

Joey_Soap said:

A terrific illustration of why the UK tax and benefit system is terminally broken. It should not be possible to game the system to get tax or benefit advantage. The system is broken, it's unfit for purpose. Sadly, nobody has the appetiie to change it to something far more sensible. Meantime - Fill your boots. It'd be daft not to.

A little harsh...there is no tax advantage in this scenario, unless you are adjudicating on the 40% TR for HRT payer.

Paul_Herring

A little harsh...

It comes across as a little "I can't do it, why should anyone else be able to?"

Albermarle

A terrific illustration of why the UK tax and benefit system is terminally broken

I am not disagreeing with you but I think whichever country you live in , there will be a lot of issues with how the tax and benefit system works. UK is not unique in this respect by any means.

ByondDoubt

Joey_Soap said:

A terrific illustration of why the UK tax and benefit system is terminally broken. It should not be possible to game the system to get tax or benefit advantage. The system is broken, it's unfit for purpose. Sadly, nobody has the appetiie to change it to something far more sensible. Meantime - Fill your boots. It'd be daft not to.

Hi Joey,

I do agree that there is an element of this that feels like 'gaming the system'.

However, a year ago when I started to look into my finances I found that I had been overpaying for many years, and despite being able to present evidence the review (and repayment) was limited to only the last three years.
The system relies very heavily on the public being unaware of what they are entitled to, or how best they can manage their finances.
If there was a call for fairness then it must work both ways; it's far worse that an isolated old person is not automatically provided with a benefit they are entitled to that could increase their enjoyment of life, than they keep money that they were never entitled to as some arbitrary line in the sand has been passed.

ByondDoubt

cloud_dog said:

the benefit of 'lumpy' contributions

I have a follow-up question on implementing this new strategy.

How should I proceed with regards to the HMRC?
It seems that I should inform them now that I will be increasing my salary sacrifice to reduce my annual pay, allowing them to adjust the tax code and recalc our entitlement to child benefit.
Would that also require that I explain the intent to go with 'lumpy' contributions, or just advise of the end-of-year target?

Mutton_Geoff

ByondDoubt said:

Now to open up discussions about the benefit of having four months of very low pay.

I still remember when AA was announced to be reduced from £255k to £50k from April 2011, I redirected all of my Jan/Feb/Mar 2011 pay into AVCs to take advantage of the old limits. The period reminded me of the style of living I had as a student.

Just a few years later I was able to draw it all back out as PCLS (tax free cash) when I transferred out a DB scheme and was over the age of 55.

The sad thing now is that my thriftiness has now been punished by the 25% tax for exceeding the LTA that started life at £1.8m, slated to rise with inflation but only got clipped lower until it descended through the value of my DB and DC schemes [grrr symbol here].

CRAIGSVILLE1

Paul_Herring said:

CRAIGSVILLE1 said:

With the savings rate, as I  found out a couple of years ago, stays at the higher tax rate, so would still only be £500 interest for you before taxed.

I thought that was based upon your income tax band after pension contributions?
The link you provide doesn't address the savings allowance.
  This link suggests that dropping your gross wage, through pension contributions, below £50K will increase your allowance back to £1,000:

The amount of your personal savings allowance depends on your ‘adjusted net income’. Adjusted net income is your total taxable income (including savings income and dividends) less certain tax reliefs, for example Gift Aid donations and pension contributions.

Sorry Paul, my mistake. I think what I did was reduce my taxable income to just under the 40% rate , which I thought would be ok, only to find the £1000 savings in interest put me back over the 40% , meaning I was taxed on the  extra £500 😭
Make sure if you are getting the full £1000 interest, you are below £49000 
Then again, I may be wrong again 🤪🤣

zagfles

ByondDoubt said:

cloud_dog said:

the benefit of 'lumpy' contributions

I have a follow-up question on implementing this new strategy.

How should I proceed with regards to the HMRC?
It seems that I should inform them now that I will be increasing my salary sacrifice to reduce my annual pay, allowing them to adjust the tax code and recalc our entitlement to child benefit.
Would that also require that I explain the intent to go with 'lumpy' contributions, or just advise of the end-of-year target?

It's worth giving them an income estimate on your personal tax account (register for this is you haven't already - very useful). Otherwise they might make income assumptions based on year to date earnings.