Lump sum pension contribution before potential Labour tax raid?

zagfles

booneruk said:

It would be very difficult to reduce tax relief to a common base if salary sacrifice is still a thing, at least as far as I see it. Would they completely kill that off?

It's all speculation, and if I had a pound for every time someone stressed about changes to pension allowances then, well, I wouldn't need to save for a pension!

My guess is they wouldn't ban sal sac as that would be hugely discriminatory, but restrict employer conts to around the level of the best public sector scheme. So maybe 40% of salary, so that would restrict sal sac to something like 20-25% depending on base employer conts. 

Marcon

Ron_Weasley said:

I wonder if I might canvas some opinions?  I have a reasonably high income (45% tax marginal income tax rate) and am considering putting a lump sum into my SIPP to get the 45% tax relief.

Of course I would not get the tax back until I complete a tax return in 2025,

Do you think I should do this now, before Labour do anything like limiting tax relief on contributions to basic rate perhaps?  And what would happen if I make say a 50k payment now and then in say October, Labour do change the rules. Would I still get 45% tax back (since the contribution has already been made) or would I not (since the tax rebate would not have been paid back to me yet)?

What's your thoughts. I would kick myself if I don't put the money in now and then Labour limit the tax relief on contributions going forward. On the other hand, I would also kick myself if I DO put the money in, only to find the tax I can later claim back is reduced (in which case, I'd rather have hung on to the cash).

So I am in a bit of a dilemma!

Your call entirely. Nobody here knows any more than you do!

dunstonh

Tax relief is tied in with the income tax bands.  You also have things like salary sacrifice to take into account, along with the thresholds.   It is not a simple case of taking a tax wrapper and ripping the rules up on it.    It would require significant consultation and planning along with primary legislation.  It may even need the creation of a new tax wrapper and closure (for new business) of the old product (just as in 1988 where it was simpler to create personal pensions rather than tinker with Retirement Annuity contracts).

providers will have to completely recode software.  HMRC would need to change PAYE and a load of other software along with the knock on to other things.  A major change like that takes years. Not days, weeks or months.

For example, chargeable gains on life assurance would be affected by a change in pension contributions.  There are so many knock-ons to a massive change like that.

Hoenir

As above

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Ron_Weasley

zagfles said:

Obviously this is speculation, but I think it's likely that tax relief may eventually be restricted to basic rate or possibly flat rate eg 25%, but I doubt they'd be able to make any changes this tax year. But it's possible they could introduce anti-forestalling legislation, as the previous Labour govt did in 2009 when they planned to restrict tax relief to basic rate for high earners (and which never happened because of the change in govt, instead the annual allowance taper happened which had a similar effect on very high earners). 

So if that sort of thing happens again, then contributions now would be OK but contributions after the announcement/budget may be caught by anti-forestalling. 

So personally if I was it that situation and was going to make a big contribution this tax year anyway, I'd do it now rather than later. Anti-forestalling is more likely than retrospective taxation IMO. 

Thanks. That's exactly the kind of analysis and input I was looking for. I am inclined to make a payment soon, before any possible announcements by the new government. I think that's the safest option.

Ron_Weasley

kempiejon said:

Ron_Weasley said:

I wonder if I might canvas some opinions?  I have a reasonably high income (45% tax marginal income tax rate) and am considering putting a lump sum into my SIPP to get the 45% tax relief.

Of course I would not get the tax back until I complete a tax return in 2025,

Do you think I should do this now, before Labour do anything like limiting tax relief on contributions to basic rate perhaps?  And what would happen if I make say a 50k payment now and then in say October, Labour do change the rules. Would I still get 45% tax back (since the contribution has already been made) or would I not (since the tax rebate would not have been paid back to me yet)?

What's your thoughts. I would kick myself if I don't put the money in now and then Labour limit the tax relief on contributions going forward. On the other hand, I would also kick myself if I DO put the money in, only to find the tax I can later claim back is reduced (in which case, I'd rather have hung on to the cash).

So I am in a bit of a dilemma!

Yes, do it now. You'll probably feel better. I always put my full allowance into my SIPP each new tax year so you're already 3 month too late. Have you not filled your ISA yet either? You're missing time compounding. Also won't you get back the 20% element from your SIPP provider first, they gross it up with the balance to come with tax return?

I'm already maxed on my ISAs. The SIPP contribution is more difficult. Sometimes I earn quite a lot - sufficiently much that I lose most of my pension tax-free allowance due to tapering relief. One year it was down to £4k and i had already put the maximum (then) £40k in. So I got all but no tax relief on my contributions, yet the £40k will be subject to another 25% tax when I withdraw it, taxing me twice!  This year, I know I won't be earning so much so I can add about another £50k and be safe.

The pension is a salary-sacrifice, BTW so there's no grossing up going on. I just put the gross amount in.

zagfles

[Deleted User] said:

booneruk said:

It would be very difficult to reduce tax relief to a common base if salary sacrifice is still a thing, at least as far as I see it. Would they completely kill that off?

It's a very easy change to make. They basically just remove the exclusion for pensions in the optional remuneration rules that applied from April 2017.

They could do but I suspect a lot of private sector employment contracts for higher earners would then change to eg 20-30% pension contributions with a lower salary, rather than the current trend of minimal employer pension conts with higher salary and a sal sac option (so employees get to choose balance of pension/earnings). Rather than banning (or taxing) sal sac they might limit it. 

Ron_Weasley

dunstonh said:

A major change like that takes years. Not days, weeks or months.

I don't agree with that. They changed the annual limit from £40k to £60k at a stroke. Ditto changing the start of tapered relfef went up from £210k and the minimum allowance down from £10k to £2k, at a stroke.

The new government could annouce similar - e.g. dropping the maximum contribution back down to £40k or lower, on Friday if they so chose.

zagfles

Ron_Weasley said:

dunstonh said:

A major change like that takes years. Not days, weeks or months.

I don't agree with that. They changed the annual limit from £40k to £60k at a stroke. Ditto changing the start of tapered relfef went up from £210k and the minimum allowance down from £10k to £2k, at a stroke.

The new government could annouce similar - e.g. dropping the maximum contribution back down to £40k or lower, on Friday if they so chose.

The actual change would likely take a couple of years but as above they could effectively stop it immediately using anti-forestalling legislation, there is a precedent, exactly that was done in 2009 on pension tax relief. 

JoeCrystal

Here is an idea: How about we wait and see? What if things change? Pensions and all financial matters are always subject to the whims of governments anyway. Ron_Weasley will have to put up with changes anyway, but I suspect they can tolerate such changes better than most!  Enough about political fearmongering anyway. This is just like every time there is a budget; there are always rumours about removing a tax-free lump sum, and guess what? That has not happened!

Budgets and statements are made, laws and regulations are changed, and we, like everyone else in the country, must put up with it. I certainly do not have time to worry about what might happen in the next tax year; it is best to focus on what is possible right now regarding retirement provision and make changes when and if necessary.