HMRC Scheme Enquiries (No Big Group champions or tax advisors here please)

[Loan Ranger]

Hi Finalwhistle, apologies if I misunderstood, but you cannot distribute a pension contribution over prior applicable years, what you can do is carry forward unused pension contribution allowances of £40k from the prior 3 years , so in 2018-19, you could contribute £160K into a pension (£40K each for 2015/16, 16/17, 17/18 and 18/19, assuming you had a SIPP or similar pension open in these years, and you have not made contributions, any contributions you have made should be subtracted from this figure (the gross amounts)).
From the amount you owe I assume your taxable income for 18/19 (including LC) far exceeds £160K , it is likely therefore that your pension allowance for 18/19 would be £130K (£40K each for 2015/16, 16/17, 17/18 and £10K for 18/19 due to taper relief). You could pay in £104K, government would add basic tax relief (26K), and you would get a further £31.6K tax relief. So your pension would increase by £130K , £57.6K of which would be from tax you would have otherwise have paid on the LC.

There is a further twist in the tax relief taper for the current year.

You are only subject to the taper if your total income - pension contributions > £110k.

So, assuming maximum carry forward, and contributing £160k, you could have income up to £270k in 2018/19 before the taper kicked in.

[Albert49]

You would expect.. because you are calculating it incorrectly. I would be distributing the £100k throughout applicable years to maximise any available tax thresholds (in exactly the same way as CLSO does for the income thresholds). In doing so I’ve managed to squeeze out another £30k in tax savings. Hence the reduction in the LC.

Hi Finalwhistle, apologies if I misunderstood, but you cannot distribute a pension contribution over prior applicable years, what you can do is carry forward unused pension contribution allowances of £40k from the prior 3 years , so in 2018-19, you could contribute £160K into a pension (£40K each for 2015/16, 16/17, 17/18 and 18/19, assuming you had a SIPP or similar pension open in these years, and you have not made contributions, any contributions you have made should be subtracted from this figure (the gross amounts)).
From the amount you owe I assume your taxable income for 18/19 (including LC) far exceeds £160K , it is likely therefore that your pension allowance for 18/19 would be £130K (£40K each for 2015/16, 16/17, 17/18 and £10K for 18/19 due to taper relief). You could pay in £104K, government would add basic tax relief (26K), and you would get a further £31.6K tax relief. So your pension would increase by £130K , £57.6K of which would be from tax you would have otherwise have paid on the LC.

[Finalwhistle]

Ok, I get that you can not allow for Pension contributions for the years that you are settling, and only allow for the whatever remaining personal tax allowance for that year.

What I dont get from your example is if your DR LC is £175k, why does putting £100k in to your pension pot reduces it to £145? I would expect the LC to reduce to £75k on top of whatever else earning you have (175k LC - 100k Pension)

You would expect.. because you are calculating it incorrectly. I would be distributing the £100k throughout applicable years to maximise any available tax thresholds (in exactly the same way as CLSO does for the income thresholds). In doing so I’ve managed to squeeze out another £30k in tax savings. Hence the reduction in the LC.

[luxCon]

...For me the DR LC would be £175k and i could reduce it to £145k if i put £100k into a pension pot (so pay £245k in total). the CLSO settlement figure was £135k. SO for me its a no brainer to go through CLSO and avoid the DR LC (even taking into account the reduction through pension contributions).

Ok, I get that you can not allow for Pension contributions for the years that you are settling, and only allow for the whatever remaining personal tax allowance for that year.

What I dont get from your example is if your DR LC is £175k, why does putting £100k in to your pension pot reduces it to £145? I would expect the LC to reduce to £75k on top of whatever else earning you have (175k LC - 100k Pension)

[ConfusedEasily]

ASK AN ADVISOR - THIS IS NOT AN ADVISORS THREAD!!! phil@dsw will help you so send him a PM, pay him £500 notes, go through CLSO and let him work out whether its best for you to go DR LC and or/ use pension contributions or not. For me the DR LC would be £175k and i could reduce it to £145k if i put £100k into a pension pot (so pay £245k in total). the CLSO settlement figure was £135k. SO for me its a no brainer to go through CLSO and avoid the DR LC (even taking into account the reduction through pension contributions).

CLSO is a means of spreading the tax you should have paid in previous years using any remaining lower tax thresholds. This does not permit any pension contributions to further lower the tax thresholds as they are already low (based on the fact that when using a scheme your salary was minimal).

When applying the DR LC all tax is applied in ONE tax year (2018/19), however they will enable some tax relief through any unused pension contributions (from previous tax years). It means you will need a "tulip load of cash" in addition to your DR LC amount to reduce the DR LC amount.

Bang on.

[ConfusedEasily]

Could you please expand. What do you mean You cant Pensions for CLSO2?

If you used schemes in, say 2008, 2009 with, say, £60,000 loans for each year (a total of £120,000). CLSO2 will expect you to pay tax against £60,000 for each year. You will not be allowed to use any unused pension allowance for those years because you are out of time.

If you decide not to settle and pay the LC instead then can use any pension allowance applicable for 2019. So I guess if you threw all your earnings from that tax year into pensions you'd reduce your LC liability.

[Finalwhistle]

Could you please expand. What do you mean You cant Pensions for CLSO2?

ASK AN ADVISOR - THIS IS NOT AN ADVISORS THREAD!!! phil@dsw will help you so send him a PM, pay him £500 notes, go through CLSO and let him work out whether its best for you to go DR LC and or/ use pension contributions or not. For me the DR LC would be £175k and i could reduce it to £145k if i put £100k into a pension pot (so pay £245k in total). the CLSO settlement figure was £135k. SO for me its a no brainer to go through CLSO and avoid the DR LC (even taking into account the reduction through pension contributions).

CLSO is a means of spreading the tax you should have paid in previous years using any remaining lower tax thresholds. This does not permit any pension contributions to further lower the tax thresholds as they are already low (based on the fact that when using a scheme your salary was minimal).

When applying the DR LC all tax is applied in ONE tax year (2018/19), however they will enable some tax relief through any unused pension contributions (from previous tax years). It means you will need a "tulip load of cash" in addition to your DR LC amount to reduce the DR LC amount.

[luxCon]

Please note - you can't use Pensions for CLSO2. HMRC have confirmed that.

Could you please expand. What do you mean You cant Pensions for CLSO2?

[cojak]

In order to satisfy those who feel that tax advisors have too much of a voice in this forum, feel free to use this thread (I've linked to another thread that offers the same option https://forums.contractoruk.com/hmrc...on-thread.html).

This isn't a place for a slanging match so please don't post derogatory comments regarding those people I've asked not post. I will respond if they don't; this will end in a ban.

And remember - the people posting on here ARE NOT TAX ADVISORS.

YOU are responsible for your own due diligence, I suggest you look around the forum rather than just relying on this thread.

I'm going to post this regularly within this thread.

[Cyclonic]

I was looking at the same idea but the numbers aren't as good as one might initially think, and of course you need a boatload more money to do this.

Try running some numbers on various income/loan/pension amounts for 2019 and see what you get.

I was thinking I could release equity from my house, will have to do that anyway. It will mean a bigger mortgage but at least I'll keep the equity. Just in my pension fund rather than the house. Once I retire I can use the tax free lump sum to pay off any remaining mortgage.