Increased AA - should I withdraw money from ISA and increase my Salary Sacrifice?

GazzaBloom

With the unexpected Annual Allowance increase to £60K, and as I am salary sacrificing to the £40K 2022/3 limit now, does it make sense for me to draw some money from my S&S ISA to allow me to increase my SS up to the £60K.

I have run some calcs and it appears that If I increase my SS from April salary (paid at the end of April), I will lose around £6K take home pay to the end of the calendar year but would benefit from £12K going into my pension, so it's around £2 into the pension for every £1 of take home pay I give up.

Does it make sense to do this and take some money from my S&S ISA to cover the shortfall in take home pay? I can't see a downside apart from paying potentially 20% tax on £12K+growth in the pension on withdrawal rather than having £6K+growth tax free on withdrawal from the ISA.

It's a no brainer, right?

penners324

Sounds sensible 

westv

When I've done these sort of calcs I've always allowed for 75% of any pension contribution being taxed at 20% on withdrawal

GazzaBloom

Are the pension AA & LTS changes subject to a vote by MPs or is it a done deal?

I know Labour are making noises about reversing it, so keep to make the most of it in case it changes at next election

GazzaBloom

westv said:

When I've done these sort of calcs I've always allowed for 75% of any pension contribution being taxed at 20% on withdrawal

Yeah that's the only potential downside I can see vs leaving it in the ISA but starting with double the money is still more advantageous

GrubbyGirl_2

Are you sure that Labour won't keep their promise to reverse it?

GazzaBloom

GrubbyGirl_2 said:

Are you sure that Labour won't keep their promise to reverse it?

No, but that would only potentially be if they win the next General Election, hence I want to start this immediately and make the most of it before the next GE which is at the latest January 2025 so we have this year and next year to get stuck into the £60K

GrubbyGirl_2

GazzaBloom said:

GrubbyGirl_2 said:

Are you sure that Labour won't keep their promise to reverse it?

No, but that would only potentially be if they win the next General Election, hence I want to start this immediately and make the most of it before the next GE which is at the latest January 2025 so we have this year and next year to get stuck into the £60K

I'd be amazed if they didn't win the next election.  I guess it's a risk you have to judge, better if you're not close to the current LTA.  Labour don't like those that can afford to put £40 or £60k PA into their pension so I wouldn't be surprised if they not only abolished it but also changed the rules.  

MallyGirl

GazzaBloom said:

With the unexpected Annual Allowance increase to £60K, and as I am salary sacrificing to the £40K 2022/3 limit now, does it make sense for me to draw some money from my S&S ISA to allow me to increase my SS up to the £60K.

I have run some calcs and it appears that If I increase my SS from April salary (paid at the end of April), I will lose around £6K take home pay to the end of the calendar year but would benefit from £12K going into my pension, so it's around £2 into the pension for every £1 of take home pay I give up.

Does it make sense to do this and take some money from my S&S ISA to cover the shortfall in take home pay? I can't see a downside apart from paying potentially 20% tax on £12K+growth in the pension on withdrawal rather than having £6K+growth tax free on withdrawal from the ISA.

It's a no brainer, right?

OH is certainly going to take advantage of the increase to £60k while it is there - he gets the employer NI as well so it is a no brainer for us. I don't get the 'er' NI and already salsac into BR tax so that is still under consideration for next year. We would use ISAs to fund the gap if needed.

Pat38493

GazzaBloom said:

Are the pension AA & LTS changes subject to a vote by MPs or is it a done deal?

I know Labour are making noises about reversing it, so keep to make the most of it in case it changes at next election

I think that the changes that are coming into effect in April only requires a single vote in the house of commons as it's really just changing the limits and allowance numbers consistent with the existing law..  The more complicated parts like the complete abolition of the LTA requires a lot more legislative processes.

GazzaBloom

Pat38493 said:

GazzaBloom said:

Are the pension AA & LTS changes subject to a vote by MPs or is it a done deal?

I know Labour are making noises about reversing it, so keep to make the most of it in case it changes at next election

I think that the changes that are coming into effect in April only requires a single vote in the house of commons as it's really just changing the limits and allowance numbers consistent with the existing law..  The more complicated parts like the complete abolition of the LTA requires a lot more legislative processes.

Thanks, I'm nowhere near LTA yet, it's the increase in AA that's got my tail wagging for now.