Lump sum pension contribution before potential Labour tax raid?

dunstonh

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.

You are not comparing like for like. The annual allowance is an adjustable figure within the existing framework, as are changing tapering thresholds.

You are talking about a wholesale change to how pensions and payroll work, along with all the indirect areas that will come from that.     I wouldn't be surprised to see it end up coming at some point.   However, its the sort of thing that comes after a longer consultation period.   Its akin to the sorts of things that happened under Labour previously with A day.  That took around 5 years to come to fruition.

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

Which would be very easy to implement within the existing framework.

horsewithnoname

I doubt much will change in any respect. Labour and Tory are virtually identical 

kempiejon

Ron_Weasley said:

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

Good call on filling the ISA soon as. Gotcha on the grossing up, do you miss out on the potential max contribution because your employer still needs to pay you minimum wage? My total gross went in each year to the SIPP less the employer scheme. But to my initial thought, yes stick it in right away up to your max allowable. If rules do change you've got in early, if they don't you're no worse off. Hopefully.

booneruk

[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.

Ok, I see the words you wrote but I'm not sure I understand them hehe. I might have to do some reading.

From my pov though, I've been salary sacrificing into my pension since 2015 and have made sure almost all my 40% taxable income has been going in, so I'm not really sure what changed for me in 2017 (and therefore what can be reversed)

FIREDreamer

[Deleted User] said:

booneruk said:

[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.

Ok, I see the words you wrote but I'm not sure I understand them hehe. I might have to do some reading.

From my pov though, I've been salary sacrificing into my pension since 2015 and have made sure almost all my 40% taxable income has been going in, so I'm not really sure what changed for me in 2017 (and therefore what can be reversed)

Before 2017 you could salary sacrifice what you liked and you might have a tax/NIC saving if the taxable value was less than value of what you gave up.  So if you worked for, say, an electricity company you could sacrifice your salary for cheap electricity. 

The government got bored with that and so they changed the rules to say in that type of situation you got taxed on the (higher) salary you gave up rather than on the (lower) value of the benefit that you received.  The exceptions are mainly salary sacrifice for (i) pensions, (ii) childcare vouchers, (iii) low emission cars, and (iv) bike to work schemes.  

So there is a whole framework already in place for stopping people getting a tax advantage with salary sacrifce schemes. It would be legislatively simple to (i) just delete the pensions exemption, and (ii) make clear that the extra employer contribution is treated as an employee one.  There is no technically "very difficult", but I'm not saying anything of the politics.

Then you would need to tax employer contributions to defined benefit schemes as well in the name of fairness (maybe just current benefit accrual ones not ones needed / made to cover a funding deficit) - opens up another can of worms.

ewaste

I hear the next Government are going to rob my piggy bank 🐖 🐷 Oh no whatever shall I do... 🤦‍♂️ 

I hear the next Government are going to make everyone a millionaire, I can't wait to buy a Lambo or maybe ladies of the night and some Columbian marching powder.

hyubh

[Deleted User] said:

FIREDreamer said:

[Deleted User] said:

booneruk said:

[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.

Ok, I see the words you wrote but I'm not sure I understand them hehe. I might have to do some reading.

From my pov though, I've been salary sacrificing into my pension since 2015 and have made sure almost all my 40% taxable income has been going in, so I'm not really sure what changed for me in 2017 (and therefore what can be reversed)

Before 2017 you could salary sacrifice what you liked and you might have a tax/NIC saving if the taxable value was less than value of what you gave up.  So if you worked for, say, an electricity company you could sacrifice your salary for cheap electricity. 

The government got bored with that and so they changed the rules to say in that type of situation you got taxed on the (higher) salary you gave up rather than on the (lower) value of the benefit that you received.  The exceptions are mainly salary sacrifice for (i) pensions, (ii) childcare vouchers, (iii) low emission cars, and (iv) bike to work schemes.  

So there is a whole framework already in place for stopping people getting a tax advantage with salary sacrifce schemes. It would be legislatively simple to (i) just delete the pensions exemption, and (ii) make clear that the extra employer contribution is treated as an employee one.  There is no technically "very difficult", but I'm not saying anything of the politics.

Then you would need to tax employer contributions to defined benefit schemes as well in the name of fairness (maybe just current benefit accrual ones not ones needed / made to cover a funding deficit) - opens up another can of worms.

The "employee's" bit of DB schemes that is done by salary sacrifice would be no different and so would address:

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?

Any changes that go beyond that go in the "hard" box.  And that's quite a big whatever other changes a future government might want to make.  

Struggling to think of a public sector DB scheme where regular contributions are permissible as salary sacrifice...

zagfles

[Deleted User] said:

booneruk said:

[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.

Ok, I see the words you wrote but I'm not sure I understand them hehe. I might have to do some reading.

From my pov though, I've been salary sacrificing into my pension since 2015 and have made sure almost all my 40% taxable income has been going in, so I'm not really sure what changed for me in 2017 (and therefore what can be reversed)

Before 2017 you could salary sacrifice what you liked and you might have a tax/NIC saving if the taxable value was less than value of what you gave up.  So if you worked for, say, an electricity company you could sacrifice your salary for cheap electricity. 

The government got bored with that and so they changed the rules to say in that type of situation you got taxed on the (higher) salary you gave up rather than on the (lower) value of the benefit that you received.  The exceptions are mainly salary sacrifice for (i) pensions, (ii) childcare vouchers, (iii) low emission cars, and (iv) bike to work schemes.  

So there is a whole framework already in place for stopping people getting a tax advantage with salary sacrifce schemes. It would be legislatively simple to (i) just delete the pensions exemption, and (ii) make clear that the extra employer contribution is treated as an employee one.  There is no technically "very difficult", but I'm not saying anything of the politics.

What about a reverse sal sac scheme? Giving a benefit by default and allowing the employee to trade it for extra pay instead. Loads of people have that now, eg an entitlement to a company car which they trade for a car allowance. They only get taxed on the car allowance, not the greater of the car allowance and the taxable value of the car they could have had. 

Say I'm an employer and I offer you a job paying £50k salary plus £50k pension conts. You have the option of trading some of your pension conts for extra pay. If the legislation is consistent with the way company cars work, then that would be perfectly acceptable. 

Grumpy_chap

Ron_Weasley said:

They changed the annual limit from £40k to £60k at a stroke. 

AIUI / IIRC, the increase in AA from £40k to £60k had cross-party support and was raised so that Drs would continue working in the NHS instead of taking early retirement.  Reducing the AA down would not solve the issue that was originally behind the AA increase.

The BBC website also has a comment from some chap in Richmond that "the result is not a foregone conclusion" so best we all wait until Friday before worrying about what the Government might do

Ron_Weasley

JoeCrystal said:

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.

I think that's really bad advice. Totally foolish IMO for me to not consider future possibilities and plan / act accordingly.

One does not need to be Warren Buffet in order to recognise that any incoming government is going to face some difficult spending Vs taxing Vs borrowing decisions. And having ruled out changes to the big revenue streams (income tax, VAT etc) it is not rocket science to figure out that other tax opportunities may be in the firing line. Inheritance tax, capital gains tax and pension tax relief being the obvious candidates.

I have come into a high income bracket very late in life and do not have millions to fall back on. I am carefully planning how much I may need in my (hopefully imminent) retirement and can well do without losing potentially tens of thousands due to not giving any thoughts to possible future changes. If you are lucky enough to not have to think about such things then good on you.