Bigger pension and tax

MallyGirl

Dazed_and_C0nfused said:

consumers_revenge said:

My terminology may be wrong (it seemed to align when others have talked about it)

So yes I can increase the standard 8% I pay in up to whatever point stops me hitting the 40% bracket. Its not a final salary scheme.

It just seemed very easy and I wondered if there was anything I was missing?

Salary sacrifice actually means you aren't contributing anything to the pension.  You are agreeing to a reduced salary in return for additional employer contributions.

You aren't entitled to any tax relief on employer contributions, for example £500 sacrificed is £500 in your pension, not £500 plus basic rate tax relief.

But you avoid paying tax and NI on that £500.  And you don't need to involve HMRC at all as you aren't contributing to the pension, you are simply avoiding paying tax on the salary you have sacrificed.

Depending on how you structure things the usual tax/NI saving is either 42% (40% tax and 2% NI) or 28% (20% tax and 8% NI).

corrected that for you

Dazed_and_C0nfused

MallyGirl said:

Dazed_and_C0nfused said:

consumers_revenge said:

My terminology may be wrong (it seemed to align when others have talked about it)

So yes I can increase the standard 8% I pay in up to whatever point stops me hitting the 40% bracket. Its not a final salary scheme.

It just seemed very easy and I wondered if there was anything I was missing?

Salary sacrifice actually means you aren't contributing anything to the pension.  You are agreeing to a reduced salary in return for additional employer contributions.

You aren't entitled to any tax relief on employer contributions, for example £500 sacrificed is £500 in your pension, not £500 plus basic rate tax relief.

But you avoid paying tax and NI on that £500.  And you don't need to involve HMRC at all as you aren't contributing to the pension, you are simply avoiding paying tax on the salary you have sacrificed.

Depending on how you structure things the usual tax/NI saving is either 42% (40% tax and 2% NI) or 28% (20% tax and 8% NI).

corrected that for you

Thanks!  Careless 🙁