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  • FIRST POST
    • Sheriff Fatmen
    • By Sheriff Fatmen 30th Dec 19, 5:27 PM
    • 11Posts
    • 3Thanks
    Sheriff Fatmen
    Maximum Salary Sacrifice
    • #1
    • 30th Dec 19, 5:27 PM
    Maximum Salary Sacrifice 30th Dec 19 at 5:27 PM
    Hi folks,

    I'm considering making additional contributions to my employer's workplace pension scheme, which I already pay into by Salary Sacrifice / Salary Exchange means. So far I am aware of the combined contribution annual limit of 40k and also that I must leave myself with at least the UK's 'minimum wage'.

    I would ordinarily be a higher rate tax payer if it wasn't for the chunk of my salary that I 'sacrifice', hence taking me into the basic rate band.

    I discovered the following comment (highlighted red below) from The Telegraph's website, and although it is in relation to Sipps, is the comment correct and does it also apply to contributions to a workplace pension by salary sacrifice?

    I was thinking of sacrificing all of my salary (but for the minimum wage) into my pension, but that would mean I would be seeking much more tax relief than I would effectively be paying income tax on circa the minimum wage. And if that wasn't permitted, I wouldn't bother sacrificing as much, which means there must be an optimum level of 'sacrifice'.Thanks in advance to anyone who can shed some clarification.
    From the The Telegraph website:

    I ALREADY HAVE A WORKS PENSION. CAN I HAVE A SIPP AS WELL?

    Yes, there is no problem doing this, in fact you can have several Sipps (as well as multiple workplace pensions). The only restrictions are that you cannot contribute more in aggregate than the annual allowance, that their total value cannot exceed the lifetime allowance and you cannot reclaim more in tax relief than you have paid in tax.
Page 2
    • Dazed and confused
    • By Dazed and confused 14th Jan 20, 9:00 PM
    • 6,138 Posts
    • 3,263 Thanks
    Dazed and confused
    So, in essence, for option (b), the personal income tax liability for the year would equal zero, because everything had been paid into the pension?
    Contributions to a relief at source pension scheme (SIPP, personal pension or stakeholder) will have no impact on your personal tax liability. They do not reduce taxable income, they increase the amount of basic rate tax payable.

    So for someone earning 17076 they will still need to pay c915 in income tax. This assumes they haven't applied for or are the recipient of Marriage Allowance and are UK resident for tax purposes.
    • Paul_Herring
    • By Paul_Herring 14th Jan 20, 9:04 PM
    • 7,028 Posts
    • 3,725 Thanks
    Paul_Herring
    Max. that can be sacrificed straight into pension by employer = 50000 - 17076.80 = 32923.20
    Don't forget to add the employer contribution onto that.

    - (a) if no annual carry-over allowance remaining, = 40000 - 32923.20 = 7076.80, or:
    - (b) if plenty of carry-over allowance remaining, = 17076.80
    (a) will be the remainder of 40,000 minus your sacrifice and your employer contributions. Multiplied by 80%.
    (b), mutatis mutandis, likewise.

    Is this allowed?
    Yes. Consider it an extension of what people with no income can contribute - 2,880, which gets 25% relief to bump it up to 3,600.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • Sheriff Fatmen
    • By Sheriff Fatmen 14th Jan 20, 9:45 PM
    • 11 Posts
    • 3 Thanks
    Sheriff Fatmen
    So for someone earning 17076 they will still need to pay c915 in income tax.
    Originally posted by Dazed and confused
    Yes, but in the case that I presented, the pension regs would let me make a personal payment of maximum 17076 back into my pension? and the pension administrator would top that up by another 4269 (25%)?

    or from Paul_Herrings post above

    .......would let me make a personal payment of maximum 13660.80 back into my pension? and the pension administrator would top that up by another 3415.20 (25%)?
    Last edited by Sheriff Fatmen; 14-01-2020 at 9:52 PM.
    • Paul_Herring
    • By Paul_Herring 14th Jan 20, 9:53 PM
    • 7,028 Posts
    • 3,725 Thanks
    Paul_Herring
    the pension regs would let me make a personal payment of maximum 17076 back into my pension? and the pension administrator would top that up by another 4269 (25%)?
    No, as I indicated in my post, (using your slightly wrong numbers*), you could make a maximum personal payment (carry-forward permitting) from net pay of 17,076*80% = 13,660.

    Which would be bumped up by 25% of 13,660 to bring it back up to 17,076.

    The total amount, including any tax relief is what needs to match up to the numbers you're aiming for (i.e. the maximum amounts of 40,000 (+carry-forward) and gross pay.)


    * You're still failing to take account of any employer contribution above your own salary sacrifice.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • Dazed and confused
    • By Dazed and confused 14th Jan 20, 9:59 PM
    • 6,138 Posts
    • 3,263 Thanks
    Dazed and confused
    You asked what the personal income tax liability would be. For most people, including those making relief at source pension contributions, that will be 915.

    I had assumed that the 17,076 was the maximum (gross) contribution so the pension tax relief will only be 3,415. Added to a net contribution of 13,661.

    If the tax relief was 4,269 then the gross contribution would be 21,345. And the personal income tax liability would still be 915.
    • Sheriff Fatmen
    • By Sheriff Fatmen 14th Jan 20, 10:00 PM
    • 11 Posts
    • 3 Thanks
    Sheriff Fatmen
    No, as I indicated in my post, (using your slightly wrong numbers*), you could make a maximum personal payment (carry-forward permitting) from net pay of 17,076*80% = 13,660.

    Which would be bumped up by 25% of 13,660 to bring it back up to 17,076.

    The total amount, including any tax relief is what needs to match up to the numbers you're aiming for (i.e. the maximum amounts of 40,000 (+carry-forward) and gross pay.)


    * You're still failing to take account of any employer contribution above your own salary sacrifice.
    Originally posted by Paul_Herring
    thanks Paul, with you now.

    noted re: employers contributions but I was just trying to keep it as simple as I could; its a useful point for others though, thanks
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