Personal Savings Allowance and Salary Sacrifice

huw01

Hi, any insights to this topic will be greatly appreciated.

I earn circa £42k per year and have works pensions scheme which I can use salary sacrifice to make additional contributions into the works pension scheme.

I have upped my contributions from last month from 5% of my gross salary to 10% of my gross salary. I end up paying less income tax and NI contributions plus the company also contributions the saved employer NI contributions into my company pension scheme.

My question is now around the personal savings allowance on savings interest. I will earn way more than 1000 in savings interest. If on my works pension scheme I contribute more % of my gross salary into pension contributions, thus reducting my gross pay. Could I reduce it enough (if I can afford to live on a reduced monthly income) so I then gain more of an personal savings allowance ?

I have read somewhere if your gross pay is only say to £12k per annum then you can add say another £6k on to it as savings interest income before you have to start paying interest on it

Thank you in advance for any light anyone can throw on this 

El_Torro

The important thing to remember is that you can't salary sacrifice to below minimum wage. So assuming you work full time it won't be possible to earn as little as £12k a year. 

You could salary sacrifice to minimum wage and then make extra voluntary contributions to get your income to £12k or lower. Seems like a pretty extreme way to not pay tax on interest. May work for you though.

EthicsGradient

You can't reduce your pay below the minimum wage; so if you're full time, it wouldn't be possible.

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained.

Salary sacrifice for employers - GOV.UK (www.gov.uk)

You could salary sacrifice to minimum wage and then make extra voluntary contributions to get your income to £12k or lower.

I don't think voluntary contributions affect your income; they just raise the amount you can earn as a basic rate payer before higher rate kicks in.

huw01

Thank you both so much for your prompt, concise and clear responses.

I am a full time employee, so even reducing my minimum salary to the national minimum wage over 35 hours and 52 weeks, the minimum I can reduce my gross salary to therefore is around £19k. So my idea of possibly benefiting from a greater personal saving allowance isn't possible.

Not to worry, I will still probably increase my pension contributions via salary sacrifice though as I am a fan of paying less tax and NI

Dazed_and_C0nfused

huw01 said:

Hi, any insights to this topic will be greatly appreciated.

I earn circa £42k per year and have works pensions scheme which I can use salary sacrifice to make additional contributions into the works pension scheme.

I have upped my contributions from last month from 5% of my gross salary to 10% of my gross salary. I end up paying less income tax and NI contributions plus the company also contributions the saved employer NI contributions into my company pension scheme.

My question is now around the personal savings allowance on savings interest. I will earn way more than 1000 in savings interest. If on my works pension scheme I contribute more % of my gross salary into pension contributions, thus reducting my gross pay. Could I reduce it enough (if I can afford to live on a reduced monthly income) so I then gain more of an personal savings allowance ?

I have read somewhere if your gross pay is only say to £12k per annum then you can add say another £6k on to it as savings interest income before you have to start paying interest on it

Thank you in advance for any light anyone can throw on this 

As others have said NMW rules will likely prevent you from reducing your taxable income to the extent that you can benefit from the savings starter rate band (upto £5,000 interest gets taxed at 0%).

The other common method of contributing to a pension is relief at source (RAS) but contributions made using that method don't reduce your taxable income so wouldn't help you achieve your aim.

lisyloo

Have you looked at a cash ISA? or stocks & shares ISA?

huw01

thanks I already have a Stocks and Shares Isa and investments and premium bonds.