Cutting tax.

The_Bookman

I am 66. On 1st October I will be 'retired', and in receipt of the State Pension plus two other private workplace pensions, total of the 3 will come to around £51k, so eating all of my Personal Allowance.

I have a small SIPP which I started at the back end of the last tax year, which currently has just under £18k in it, £12.6k of which I added in the last tax year - (carry forward contribution allowance?).

I have been invited to take up some contract work, on 1st October, at a day rate of circa £650 per day, 3 days per week. It is likely that this can/will be done via an umbrella company, precisely which company, I may have some choice over, although I expect my prospective employer will have a favourite in mind. I am aware of the changes being introduced to NI contributions to SIPPs in April 2029; I do not expect this contract to continue beyond that date.

Coming to the point, it seems to me that, given every penny I earn on this contract will be taxed at 40%, the smartest move would be to do a significant salary sacrifice into my existing SIPP.
I am not clear on how much I could do in THIS tax year, or in subsequent tax years - I'm thinking here about unused pension contributions from previous 3 tax years?

Obviously, as a 'pensioner', I won't have to pay NI. My research so far suggests I should be asking the as yet unchosen umbrella company if it will pass on its savings in Employer NI contributions to me, in my SIPP, and that most will agree to do so?

Have I missed anything? What sort of salary sacrifice should I be considering? Is there a better way of legally paying as little tax as possible?

Dazed_and_C0nfused

Could you explain a bit more about why you are "thinking about unused pension contributions from previous 3 tax years".

You can never backdate pension contributions. You can carry forward unused annual allowance from previous years however you have to used this year's allowance before this is possible.

This year's allowance is £60k and nothing in your post indicates you will have used this in the current tax year so it's unclear why carry forward is at all relevant?

kimwp

If your pensions are £51k a year, won't you be paying 40% on any further pension withdrawal? So putting anything further into a pension won't be tax -advantageous unless you would otherwise be paying more than 40% on it.

Notwithstanding employer contributions of course.

kimwp

Oh! At £650 a day, you'll be paying above 40% tax, so as you'll be just paying 40% on it as pension withdrawals, it does sound tax advantageous.

Nb, the personal allowance is £12750 (or thereabouts), do you mean your combined pensions will put you over the higher rate tax threshold?

The_Bookman

https://forums.moneysavingexpert.com/discussion/comment/82055374#Comment_82055374

Poor terminology - should indeed read unused annual allowance. Thanks.

The_Bookman

https://forums.moneysavingexpert.com/discussion/comment/82055381#Comment_82055381

Yes, combined total of all 3 will exceed £50k. Thanks.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82055398#Comment_82055398

So how long will this contract work last? When added to the £50k pension is it going to put you over £100k taxable income for a tax year? If so then definitely do some pension contributions to get yourself below the £100k mark. Even if the pension coming from the contributions is taxed at 40% you will have saved yourself from the 60% tax trap.

Not sure how it would be worked out but do remember that salary sacrifice can't get you down below the NMW. I think that is an hourly rate not daily.

Albermarle

Be aware that salary sacrifice is only one of three ways that you can make pension contributions from a salary.

The employer chooses their preferred method, so maybe the new employer /umbrella company may not operate a salary sacrifice scheme anyway.

The other two ways still bring the tax relief benefits, but have no effect on NI . Although for one of the alternative ways you have to claim back higher rate relief from HMRC.

The_Bookman

https://forums.moneysavingexpert.com/discussion/comment/82055771#Comment_82055771

As mentioned, I don't imagine the contract going beyond April 2029. It seems the £100k tax trap is a very real possibility for me if I don't do something, hence the OP. Noted re NMW. Thanks.