Salary Sacrifice Bonus and 25% Tax Free Pension Allowance

1ofthe2ronnies

Hi everyone, quick question (hopefully),

If I Salary Sacrifice my annual bonus into my pension gaining the tax relief, can I then withdraw 25% of my tax free pension allowance shortly after without incurring any penalty? In effect, paying zero tax on the portion that was my bonus?

MallyGirl

1ofthe2ronnies said:

Hi everyone, quick question (hopefully),

If I Salary Sacrifice my annual bonus into my pension gaining the tax relief, can I then withdraw 25% of my tax free pension allowance shortly after without incurring any penalty? In effect, paying zero tax on the portion that was my bonus?

If this is your current workplace pension you need to check whether you can withdraw while still paying in.

Albermarle

Presuming you are over 55, this should be possible, if as said your provider allows it.

QrizB

1ofthe2ronnies said:

In effect, paying zero tax on the portion that was my bonus?

Bear in mind that if eg. you pay your bonus in by salsac then take an equivalent amount of TFLS out, you've actually crystallised 3x as much of your pension. Your pension is in a worse tax position than it was previously.

So if your pension is currently £100k and you salsac £10k of bonus, your pension becomes £110k, all uncrystallised.

If you then take £10k of TFLS, your pension is back at £100k but £30k of that is crystallised. There's no more TFLS available from the crystallised part, only from the uncrystallised £70k.

1ofthe2ronnies

Thanks, valid points and food for thought. A bit more homework methinks.

Dazed_and_C0nfused

1ofthe2ronnies said:

Hi everyone, quick question (hopefully),

If I Salary Sacrifice my annual bonus into my pension gaining the tax relief, can I then withdraw 25% of my tax free pension allowance shortly after without incurring any penalty? In effect, paying zero tax on the portion that was my bonus?

I presume you realise this but you don't gain any tax relief.

Salary sacrifice results in employer contributions so you can't benefit from any pension tax relief.

The benefit to you is from avoiding paying tax (and NI) on the amount you have sacrificed.