Sympathy for the Devil

[jbeer]

Sorry, with regards to last bit, what I really mean is the closer you can get to earnings of 150k for the year, the more you can divert to pension (doesn't necessarily have to be under) . Again assuming it's allowed.

[ChimpMaster]

With regards to pension contributions, just remember the tax relief is tapered if income for year is above 150k at a rate of £2 per £1 earned over up to earnings of 210k where the relief is capped at 10k. I'm pretty sure this affects the carry forward years as well. So if you have large loan amounts (greater than 200k) it might not divert as much as you think into pension assuming it's even allowed. However, if loan amounts are around 100k (certainly less than 150k) then it could possibly be a good tactic.

Is that even when using previous years' allowances? i.e. if you haven't used pension allowances for a few years then you would have an allowance of £160k come 2019.

But if your income (inclusive of loans) is > £210k in 2019, then are you saying that relief will be limited to £10k?

Using an example of £210k income. If you put away £160k into a pension then the thinking was that income tax would be due on £210k - £160k, i.e. £50k. But from what you're saying income tax will be due on £200k?

(I've not had a pension running for the past 15 years so please excuse my lack of knowledge here).

[jbeer]

I'm not 100% certain on carry forward years but my understanding is the relief is based on current years earnings, so for your example you would get get 4*10k relief (assuming no previous contributions made) and thus income tax on 170 k. (It's slightly more complicated than this but it would be in that ballpark).
Other thing to bear in mind is if you did make pension contributions in the loan year in question it may be possible to offset the tax relief on this, if you went down the clso route (I got a verbal that this was doable from HMRC when I looked to settle but not sure if this is still the case).

[Loan Ranger]

Stick £250000 income and £160000 pension contribution into this.

Pension tax relief calculator | Hargreaves Lansdown

[jes107]

Pension

If the trust loan provider is still around would it be possible to somehow repay them (bank loans etc) and then ask them to divert the money into a pension scheme. (Risky i know)

[flamel]

If the trust loan provider is still around would it be possible to somehow repay them (bank loans etc) and then ask them to divert the money into a pension scheme. (Risky i know)

Don't even think about doing this.

[jes107]

Don't even think about doing this.

I hear you. The provider are AML/ICS (who i still use as my limited company accountants) and i was just thinking if it could be done in lots of small amounts, say 1-2k a month. Putting aside how risky it is; would this satisfy HMRC that the loan was repaid?

[ChimpMaster]

Stick £250000 income and £160000 pension contribution into this.

Pension tax relief calculator | Hargreaves Lansdown

interesting

As previously warned, my pensions knowledge is poor but if I read the numbers correctly for a 2019 income of £300k (random figure btw):

Income: £300000
Pension: £160000 - you pay £128000 and government adds £32000 i.e. 20%

Then on tax return you can reclaim £39500 tax relief.

Total tax+NI (according to IR35calc) is £130300.

So you need to have enough funds to pay £128000 into the pension, and then £90800 tax (£130300 - £39500).

That's a hefty £218800 ! But you would have reduced your tax bill by £39500.

[Iliketax]

If the trust loan provider is still around would it be possible to somehow repay them (bank loans etc) and then ask them to divert the money into a pension scheme. (Risky i know)

You might want to ask an independent tax adviser about para 4(1) here: Finance (No. 2) Act 2017

It basically says that if you don't pay tax on the money you "ask them to divert" then the repayment of the loan won't count as a repayment. So the April 2019 loan charge still applies to that old loan. But that would be less than half your problem because if the promoter arranged a new loan for you to repay the original loan then there may well be a new disguised remuneration charge on the new loan. So the tax rates get quite high, quite quickly (even ignoring GAAR).

[Iliketax]

interesting

As previously warned, my pensions knowledge is poor but if I read the numbers correctly for a 2019 income of £300k (random figure btw):

Income: £300000
Pension: £160000 - you pay £128000 and government adds £32000 i.e. 20%

The maximum your could get tax relief on would be 3x £40,000 plus £10,000. That assumes you already have a registered pension scheme, haven't made any pension contributions in 2018/19 or in the three years before, and that your annual allowance is not tapered in the earlier years.

If your employer is still around (so that PAYE/NIC is due) then you will need to fund the tax on full loan charge plus the net pension contribution (so you will need to fund the extra tax relief that you will eventually get, until you've submitted your tax return and HMRC get around to refunding you). Also, you don't get relief for the employee's NIC (or self-employed NIC if that is relevant). This isn't relevant if your employer has been wound up.

You will also be at risk of changing pension relief rules. You can partly deal with that by getting some of the loans waived (formally) this tax year and making contributions this year. But take independent advice.

If you have a big pension pot already, you can get yourself into the 55% tax regime which makes it less attractive. If you are close or over 55 then you can get some of the cash back tax free (PCLS). But you'd have to make sure that the PCLS didn't fund your contributions (google pensions recycling). If you will be a higher / additional rate taxpayer on retirement then it is less attractive too.