Keeping net adjusted income below £100K

mortgageadviceda

r6mile said:

Can I just ask, have you calculated the ‘value’ you are getting from the childcare benefits - TFC is worth up to £2k a year, value of 30h over 15h is harder to quantify but if I look at the prices for our nursery that is worth just over 3k per annum. Unless you have a large number of children in childcare, it just strikes that making such large pension contributions - even in excess of the annual allowance and getting charged for that - just to retain those benefits seems a bit overkill? 

Unless your lifestyle won’t be significantly impacted by such large salary sacrifice - and of course it is all going into the pension though you won’t see that for a long time. But I must admit it all seems a bit excessive to me!

With 1 child in nursery 5 days per week these are the savings:

15 hours child care per week - ~£5500/year
Tax free child care- ~£2000/year

Total saving: ~£7700

Say if I breached my pension annual allowance by say £10K (total £70K assuming no rollover allowance) to keep my net adjusted income below £100K. I would pay 40% tax on this £10K. Meaning tax of £4K. Therefore saving £3,300. I think the tax would come straight from my pension provider so I wouldn't feel this from my personal savings.

This saving of £3,300 is actually bigger than that as if I didn't put my excess of my personal allowance (above £100K)  in the pension, I would actually be paying 60% tax on what i don't contribute to my pension.

To me, it's a no brainer! 

Pretty sure this is correct, Jeremy?
 

[Deleted User]

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

mortgageadviceda

[Deleted User] said:

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

from my pension provider:

If you exceed you threshold for pension savings, then you’ll automatically be issued a “Pension Savings Statement” with these details by the scheme administrator.  If you do not have carried forward allowances to absorb these savings, then you be provided with details how you can settle the tax charge using the “Scheme Pays” facility (i.e. a reduction in your pension savings to settle the tax due) or you can report the details via HMRC self-assessment and you’ll either be required to settle the outstanding tax directly with HMRC or your tax code will the adjusted to account for the additional tax due.

 

Jeremy535897

[Deleted User] said:

mortgageadviceda said:

Jeremy535897 said:

Don't forget the £60,000 limit is next tax year, not the current one.

Got it! Thank you Jeremy. You've been a huge help here. 

Still going back and forth with financial advisor and he just doesn't get it. To confirm:

* I can keep my net adjusted income below 100K to allow me to access child care benefits by contributing bonus/more salary to my pension
* In doing so I may breach the annual pension allowance but that is fine as i just pay tax on the amount i breach separately and it doesn't impact net adjusted income and access to childcare.

:-)

Is there some kind of issue with the adviser being aware that their client (you) is knowingly contributing to a pension in excess of his annual allowance? Code of conduct issue? Breach of terms and conditions of engagement?

I don't think so. See:
https://techzone.abrdn.com/public/pensions/funding-above-annual-allowance

They haven't picked up on the withdrawal of childcare and personal allowance point, but it is advice to financial advisers, and it says nowhere that there is a code of conduct issue. What the problem for the financial adviser might be is that without recognising these benefits, he can't see why he would recommend such a course of action.

There is no suggestion here that there is anything reprehensible about exceeding the annual allowance:
https://www.gov.uk/tax-on-your-private-pension/annual-allowance

Jeremy535897

mortgageadviceda said:

[Deleted User] said:

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

from my pension provider:

If you exceed you threshold for pension savings, then you’ll automatically be issued a “Pension Savings Statement” with these details by the scheme administrator.  If you do not have carried forward allowances to absorb these savings, then you be provided with details how you can settle the tax charge using the “Scheme Pays” facility (i.e. a reduction in your pension savings to settle the tax due) or you can report the details via HMRC self-assessment and you’ll either be required to settle the outstanding tax directly with HMRC or your tax code will the adjusted to account for the additional tax due.

 

It is the taxpayer's choice, if the sum exceeds £2,000, to ask the pension trustees to pay it. See:
https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Whoever pays, it must be reported on the self assessment tax return. See:
https://www.gov.uk/government/publications/pensions-tax-charges-on-any-excess-over-the-lifetime-allowance-annual-allowance-special-annual-allowance-and-on-unauthorised-payments-hs345-self/hs345-pension-savings-tax-charges-2022

[Deleted User]

Jeremy535897 said:

mortgageadviceda said:

[Deleted User] said:

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

from my pension provider:

If you exceed you threshold for pension savings, then you’ll automatically be issued a “Pension Savings Statement” with these details by the scheme administrator.  If you do not have carried forward allowances to absorb these savings, then you be provided with details how you can settle the tax charge using the “Scheme Pays” facility (i.e. a reduction in your pension savings to settle the tax due) or you can report the details via HMRC self-assessment and you’ll either be required to settle the outstanding tax directly with HMRC or your tax code will the adjusted to account for the additional tax due.

 

It is the taxpayer's choice, if the sum exceeds £2,000, to ask the pension trustees to pay it. See:
https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Whoever pays, it must be reported on the self assessment tax return. See:
https://www.gov.uk/government/publications/pensions-tax-charges-on-any-excess-over-the-lifetime-allowance-annual-allowance-special-annual-allowance-and-on-unauthorised-payments-hs345-self/hs345-pension-savings-tax-charges-2022

That’s the point that I was getting at - it needs to be reported on the self-assessment return.

mortgageadviceda

[Deleted User] said:

Jeremy535897 said:

mortgageadviceda said:

[Deleted User] said:

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

from my pension provider:

If you exceed you threshold for pension savings, then you’ll automatically be issued a “Pension Savings Statement” with these details by the scheme administrator.  If you do not have carried forward allowances to absorb these savings, then you be provided with details how you can settle the tax charge using the “Scheme Pays” facility (i.e. a reduction in your pension savings to settle the tax due) or you can report the details via HMRC self-assessment and you’ll either be required to settle the outstanding tax directly with HMRC or your tax code will the adjusted to account for the additional tax due.

 

It is the taxpayer's choice, if the sum exceeds £2,000, to ask the pension trustees to pay it. See:
https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Whoever pays, it must be reported on the self assessment tax return. See:
https://www.gov.uk/government/publications/pensions-tax-charges-on-any-excess-over-the-lifetime-allowance-annual-allowance-special-annual-allowance-and-on-unauthorised-payments-hs345-self/hs345-pension-savings-tax-charges-2022

That’s the point that I was getting at - it needs to be reported on the self-assessment return.

yes but as Jeremy has stated it's in a separate section and it doesn't impact on the taxable income used to calculated net adjusted income so has no impact!

[Deleted User]

mortgageadviceda said:

[Deleted User] said:

Jeremy535897 said:

mortgageadviceda said:

[Deleted User] said:

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

from my pension provider:

If you exceed you threshold for pension savings, then you’ll automatically be issued a “Pension Savings Statement” with these details by the scheme administrator.  If you do not have carried forward allowances to absorb these savings, then you be provided with details how you can settle the tax charge using the “Scheme Pays” facility (i.e. a reduction in your pension savings to settle the tax due) or you can report the details via HMRC self-assessment and you’ll either be required to settle the outstanding tax directly with HMRC or your tax code will the adjusted to account for the additional tax due.

 

It is the taxpayer's choice, if the sum exceeds £2,000, to ask the pension trustees to pay it. See:
https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Whoever pays, it must be reported on the self assessment tax return. See:
https://www.gov.uk/government/publications/pensions-tax-charges-on-any-excess-over-the-lifetime-allowance-annual-allowance-special-annual-allowance-and-on-unauthorised-payments-hs345-self/hs345-pension-savings-tax-charges-2022

That’s the point that I was getting at - it needs to be reported on the self-assessment return.

yes but as Jeremy has stated it's in a separate section and it doesn't impact on the taxable income used to calculated net adjusted income so has no impact!

I agree. I just didn’t want you to forget to enter it on the form!

Jeremy535897

[Deleted User] said:

mortgageadviceda said:

[Deleted User] said:

Jeremy535897 said:

mortgageadviceda said:

[Deleted User] said:

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

from my pension provider:

If you exceed you threshold for pension savings, then you’ll automatically be issued a “Pension Savings Statement” with these details by the scheme administrator.  If you do not have carried forward allowances to absorb these savings, then you be provided with details how you can settle the tax charge using the “Scheme Pays” facility (i.e. a reduction in your pension savings to settle the tax due) or you can report the details via HMRC self-assessment and you’ll either be required to settle the outstanding tax directly with HMRC or your tax code will the adjusted to account for the additional tax due.

 

It is the taxpayer's choice, if the sum exceeds £2,000, to ask the pension trustees to pay it. See:
https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Whoever pays, it must be reported on the self assessment tax return. See:
https://www.gov.uk/government/publications/pensions-tax-charges-on-any-excess-over-the-lifetime-allowance-annual-allowance-special-annual-allowance-and-on-unauthorised-payments-hs345-self/hs345-pension-savings-tax-charges-2022

That’s the point that I was getting at - it needs to be reported on the self-assessment return.

yes but as Jeremy has stated it's in a separate section and it doesn't impact on the taxable income used to calculated net adjusted income so has no impact!

I agree. I just didn’t want you to forget to enter it on the form!

Absolutely, and that applies whoever pays the tax, which seems at odds with the advice from the pension provider:

"You must tell HMRC about the tax charge using a Self Assessment tax return by the deadline, even if your pension scheme pays it. If your scheme only pays some of the charge, you must pay the rest directly to HMRC."
From https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

[Deleted User]

Jeremy535897 said:

[Deleted User] said:

mortgageadviceda said:

[Deleted User] said:

Jeremy535897 said:

mortgageadviceda said:

[Deleted User] said:

I don’t think that ‘the tax comes straight from the pension provider - see my post on 23rd March at 11.34. Perhaps someone else has an alternative view?

from my pension provider:

If you exceed you threshold for pension savings, then you’ll automatically be issued a “Pension Savings Statement” with these details by the scheme administrator.  If you do not have carried forward allowances to absorb these savings, then you be provided with details how you can settle the tax charge using the “Scheme Pays” facility (i.e. a reduction in your pension savings to settle the tax due) or you can report the details via HMRC self-assessment and you’ll either be required to settle the outstanding tax directly with HMRC or your tax code will the adjusted to account for the additional tax due.

 

It is the taxpayer's choice, if the sum exceeds £2,000, to ask the pension trustees to pay it. See:
https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Whoever pays, it must be reported on the self assessment tax return. See:
https://www.gov.uk/government/publications/pensions-tax-charges-on-any-excess-over-the-lifetime-allowance-annual-allowance-special-annual-allowance-and-on-unauthorised-payments-hs345-self/hs345-pension-savings-tax-charges-2022

That’s the point that I was getting at - it needs to be reported on the self-assessment return.

yes but as Jeremy has stated it's in a separate section and it doesn't impact on the taxable income used to calculated net adjusted income so has no impact!

I agree. I just didn’t want you to forget to enter it on the form!

Absolutely, and that applies whoever pays the tax, which seems at odds with the advice from the pension provider:

"You must tell HMRC about the tax charge using a Self Assessment tax return by the deadline, even if your pension scheme pays it. If your scheme only pays some of the charge, you must pay the rest directly to HMRC."
From https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Quite similar to the CGT reporting process. Report, pay and declare on tax return (not withstanding your favourite loophole)