maximising salary sacrifice pension

mat1964

So I have 2 months pay left before my semi retirement.  I will have a gap of 4 months before I earn any further money as I am taking a break and then it will take time for my new zero hours contract to kick in.  Whilst we will have a cash buffer if we need it, most of it won't be available for a few months and therefore I was going to reduce my salary sacrifice pension to save some cash to cover the four months.  

However, I think I've been looking at this incorrectly. Maybe I should pay as much as possible into my pension next 2 months - so about £20k - and then if needed take a TFLS to cover the three months.  I think I would be net £10k better off if  - £20k in and then a maximum of £10k out.  Have I missed something?  

GazzaBloom

I'm not sure of the specifics of your numbers but salary sacrifice will be tax free (as long as you are within the £40K annual allowance) and include your employers contributions plus some employers will pay the 13.8% NIC contributions on the amount you pay in as well. So more money is saved this way over savings from take home pay.

Scrounger

mat1964 said:

Maybe I should pay as much as possible into my pension next 2 months - so about £20k - and then if needed take a TFLS to cover the three months.

Excellent idea IMO.

In fact you could go further still and also pay the unsacrificed earnings into a SIPP for a additional 6.25% to 25% uplift.  Effectively you're paying 100% of earnings into pension (not exceeding a total £40k gross of course).

Scrounger

zagfles

Just check you don't fall foul of recycling rules. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

Or google "HMRC recycling rules" for some more user friendly articles

mat1964

zagfles said:

Just check you don't fall foul of recycling rules. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

Or google "HMRC recycling rules" for some more user friendly articles

thanks - yes I just did that  - and after talking to a tax specialist at work, it seems I might do so not going ahead with the plan.

Albermarle

Recycling rules are to stop you taking Tax free cash and then clearly using that to add extra to your pension ( and effectively gain tax relief for a second time) 
If you use the TFLS to fund your life for 3 months and then resume salsac payments at a similar level as before , then it does not sound like recycling ?
Maybe I have misunderstood ?

mat1964

Albermarle said:

Recycling rules are to stop you taking Tax free cash and then clearly using that to add extra to your pension ( and effectively gain tax relief for a second time) 
If you use the TFLS to fund your life for 3 months and then resume salsac payments at a similar level as before , then it does not sound like recycling ?
Maybe I have misunderstood ?

It also applies indirectly - not just if you are using it to directly pay back into a pension.

So if I am making large payments into my pension from my salary and then I take TFLS to substitute for the salary I would have had - this counts as indirect and could be considered recycling.  That's what I was told anyway  - I had until yesterday to do this for April's salary  -only just thought of it, so didn't leave myself much time to work it out and in the end decided against it given the possible penalty.