Pension contributions can be used to relieve LC19

[starstruck]

I think "you' in this context means personal(employee) contribution as opposed to employer contribution

Yes absolutely - this was the example being calculated "If you made a 50K gross pension contribution (40K from you) ". So I plugged in 40K to the personal pension contributions in the calculator.

You seemed to be disagreeing with the outcome of the calculator, do you agree with it or not?

[jbeer]

Yes absolutely - this was the example being calculated "If you made a 50K gross pension contribution (40K from you) ". So I plugged in 40K to the personal pension contributions in the calculator.

You seemed to be disagreeing with the outcome of the calculator, do you agree with it or not?

Not disagreeing with it. But you seemed to have missed the point I am making. The "you" means employee contribution so you need to plug in the 50K. They are also providing the pension tax relief at source. Adjust my calc for exact thresholds (instead of close approximations) and factor in the 10K that is being added to your pension (which they are doing) and the figures should be the same.

[starstruck]

Not disagreeing with it. But you seemed to have missed the point I am making. The "you" means employee contribution so you need to plug in the 50K. They are also providing the pension tax relief at source. Adjust my calc for exact thresholds (instead of close approximations) and factor in the 10K that is being added to your pension (which they are doing) and the figures should be the same.

It's not completely clear to be honest if it expects you to put in 50k or 40k. I interpret it to mean the money that has come out out your bank account, which is 40k in our example.

In the notes it says "If contribution £50, enter '50'. The calculator will automatically adjust and calculate any pension tax reliefs applicable."

[Loan Ranger]

It's not completely clear to be honest if it expects you to put in 50k or 40k. I interpret it to mean the money that has come out out your bank account, which is 40k in our example.

In the notes it says "If contribution £50, enter '50'. The calculator will automatically adjust and calculate any pension tax reliefs applicable."

I think it's basing it on gross contribution.

https://www.uktaxcalculators.co.uk

Try entering £40k salary and £10k pension. It comes up with pension relief of £2k, which would only be the case if you paid £8k and the provider reclaimed the £2k.

[starstruck]

Ok, having looked at loads of calculators and examples, I am pretty confident this is correct. It's a typical contractor with 100K loan charge using 2018/19 bands.

Normal payments from Ltd company

Salary 11,850 (personal allowance)
Dividends 34,500 (so not going into higher rate)

This would normally result in (34500-5000)*0.075 = 2,212.50 Dividend Tax

But due to scheme usage:

Loan Charge 100,000

Fortunately contractor has:

Spare Cash 80,000

Which is put into their SIPP. So what tax is due?

Total Income after personal allowance (excluding divs for now ) 100,000
Lower Rate Tax 34,500 @20% 6,900
Extended Lower Rate Tax 65,500 @20% 13,100
(because pension has extended lower band by 100,000)

Now dividends:

5000 is covered by allowance, there is 34,500 left in extended lower rate band
5000 @ 0% = 0
29,500 @ 7.5% = 2,212.5

So total tax due = 6,900 + 13,100 + 2,212.5 = 22,212.50

Pension company claims 20,000 which it adds to your pension pot. So, total pension = 100,000

Net tax pad = 22,212.50 - 20,000 = 2,212.50 (notice this is same number as before Loan Charge at top)

But you need to have available in cash:

80,000 for pension
22,212.50 for Self Assessment Tax

= 102,212.50

[Loan Ranger]

Ok, having looked at loads of calculators and examples, I am pretty confident this is correct. It's a typical contractor with 100K loan charge using 2018/19 bands.

Normal payments from Ltd company

Salary 11,850 (personal allowance)
Dividends 34,500 (so not going into higher rate)

This would normally result in (34500-5000)*0.075 = 2,212.50 Dividend Tax

But due to scheme usage:

Loan Charge 100,000

Fortunately contractor has:

Spare Cash 80,000

Which is put into their SIPP. So what tax is due?

Total Income after personal allowance (excluding divs for now ) 100,000
Lower Rate Tax 34,500 @20% 6,900
Extended Lower Rate Tax 65,500 @20% 13,100
(because pension has extended lower band by 100,000)

Now dividends:

5000 is covered by allowance, there is 34,500 left in extended lower rate band
5000 @ 0% = 0
29,500 @ 7.5% = 2,212.5

So total tax due = 6,900 + 13,100 + 2,212.5 = 22,212.50

Pension company claims 20,000 which it adds to your pension pot. So, total pension = 100,000

Net tax pad = 22,212.50 - 20,000 = 2,212.50 (notice this is same number as before Loan Charge at top)

But you need to have available in cash:

80,000 for pension
22,212.50 for Self Assessment Tax

= 102,212.50

This looks in the right ballpark.

If you added a bit more to the pension, you could get to a point where you paid 0% tax (everything went into the pension).

With carry forward, you can pay in up to £111,850 gross (salary + loans).

[GoneSurfing]

But you need to have available in cash:

80,000 for pension
22,212.50 for Self Assessment Tax

= 102,212.50

My understanding is that one would not have to find 102,212.50 in one payment: 80k before end of the 2018-19 tax year, but the 22,212.50 would not be due until Jan 2020 which may make it more manageable for some.

Is that right?

[Loan Ranger]

My understanding is that one would not have to find 102,212.50 in one payment: 80k before end of the 2018-19 tax year, but the 22,212.50 would not be due until Jan 2020 which may make it more manageable for some.

Is that right?

Yes.

[Delendog]

Yes.

I expect if you use a load of cash to pay into your pension and you still owe a lot of tax HMRC would be unhappy giving any TTP arrangement.

[phil@pmtc]

I expect if you use a load of cash to pay into your pension and you still owe a lot of tax HMRC would be unhappy giving any TTP arrangement.

V good point, trying to convince hmrc of ‘hardship’ at the same time as pumping a ton of cash into a pension will be close to impossible.