Pension and salary sacrifice

treo490

Good evening,

First of all, I am very sorry if this has been discussed previously, but I have been googling many times without any success and I am getting a bit stressed (probably because I am missing something obvious!)

My issue is, I earn roughly £50000.

Say I put £20000 in my pension with salary sacrifice, and my employer £10000.

I still earn above the minimum wage.

But how much can I add in a private pension?

HMRC states it is £60000 or my whole salary, whichever is the lowest. 

On the unbiased website, it says: "Salary sacrifice is an arrangement between you and your employer, where you give up or ‘sacrifice’ a portion of your salary in exchange for other, non-cash benefits."

So what is my salary? the whole £50000 or is it my "apparent" salary of £30000?

HMRC only knows my £30000 doesn't it?

So can I put an extra £20000 (50000-20000-10000) in a private pension (including the 25% that the pension provider is claiming on my behalf)

or £0 (apparent salary of £30000-20000-10000)?

I hope I am being clear enough.

Thank you very much in advance for anyone who could put my mind at peace, because I certainly don't want to do anything illegal or dodgy, but I have been parsing the HMRC website thoroughly and I can't find a clear answer.

Treo

HappyHarry

You are sacrificing £20,000 of your salary to your workplace pension, which brings your salary down to £30,000.

Your employer is contributing £30,000 to your pension.

You can now pay £30,000 (gross) to a pension plan of your choosing (based on your new salary).

Just to note, there are two maximum limits to pension contributions;

1. Your salary is the upper limit that you can contribute and receive tax relief on - in this case £30,000.
2. The annual allowance of £60,000 which is the maximum from all sources (you and your employer).

If your employer contributes some of their National Insurance savings - as many do - then your employer contributions may be more than £30,000 meaning that you cannot contribute another £30,000 without using carry-forward allowances.

singhini

HappyHarry said:

You are sacrificing £20,000 of your salary to your workplace pension, which brings your salary down to £30,000.

Your employer is contributing £30,000 to your pension.

You can now pay £30,000 (gross) to a pension plan of your choosing (based on your new salary).

Just to note, there are two maximum limits to pension contributions;

1. Your salary is the upper limit that you can contribute and receive tax relief on - in this case £30,000.
2. The annual allowance of £60,000 which is the maximum from all sources (you and your employer).

If your employer contributes some of their National Insurance savings - as many do - then your employer contributions may be more than £30,000 meaning that you cannot contribute another £30,000 without using carry-forward allowances.

What you have written makes sense but i have a question please.
Is there any issue with regards to the tax relief being claimed by the SIPP provider? 

If the salary is now viewed as £30,000 and the OP takes this as a regular monthly salary, then they would have paid £3,484 in Income Tax

Does that mean the SIPP Provider can only claim upto this amount (which would be the OP adding £13,936 and the SIPP Provider reclaiming the £3,484)

HappyHarry

No. The OP can contribute £30,000 gross to a personal pension. This would comprise of £24,000 net contribution from the OP and £6,000 tax relief claimed by the personal pension provider.

Pensions can claim more in tax relief than the individual pays in income tax. 

singhini

HappyHarry said:

No. The OP can contribute £30,000 gross to a personal pension. This would comprise of £24,000 net contribution from the OP and £6,000 tax relief claimed by the personal pension provider.

Pensions can claim more in tax relief than the individual pays in income tax. 

Thankyou for clarifying this 
Note to myself: I'm an idiot (years of money wasted and the opportunity now gone aswell)

Pollycat

Wrong board.

Move requested.

Dazed_and_C0nfused

singhini said:

HappyHarry said:

No. The OP can contribute £30,000 gross to a personal pension. This would comprise of £24,000 net contribution from the OP and £6,000 tax relief claimed by the personal pension provider.

Pensions can claim more in tax relief than the individual pays in income tax. 

Thankyou for clarifying this 
Note to myself: I'm an idiot (years of money wasted and the opportunity now gone aswell)

It is very generous of the government to allow this really.

For Gift Aid tax relief is limited by the tax you pay, pensions don't have that restriction 😀

kempiejon

I've always thought the tax treatment generous of the government. 'Specally if you've a few bob to get into it.

I had to decline a gift aid form the other week as I'm not currently paying income tax. As a quick aside if one has paid income tax on wages but have also reclaimed it all to a SIPP can they still offer the charity gift aid?

treo490

Thank you very much HappyHarry, that was very clear (and reassuring) even though it showed I didn't understand much how it worked.

I should be able to save a bit more now.

Many thanks again

Treo

Dazed_and_C0nfused

kempiejon said:

I've always thought the tax treatment generous of the government. 'Specally if you've a few bob to get into it.

I had to decline a gift aid form the other week as I'm not currently paying income tax. As a quick aside if one has paid income tax on wages but have also reclaimed it all to a SIPP can they still offer the charity gift aid?

I don't really know what you mean.  No tax you ever pay is reclaimed into a SIPP.  That would suggest there is a connection between the tax you pay and the relief at source pension tax relief you can get.  And there isn't.

Somebody

In my view there is no scope to pay contributions into a SIPP.

Maximum pension contributions = lower of 100% relevant earnings or £60k annual allowance (use of carry forwards only possible if relevant earnings allow).

In OP's case:

Gross pension contributions in the name of OP = £30k made by Employer

Relevant earnings = £30k (£50k - £20k) ignoring BIK etc, so no additional contributions possible