Pension contributions can be used to relieve LC19

[Loan Ranger]

i owe 56k via settlement. i have aprox cash reserves of 70k in a dormant ltd company i am going to wind up (paye employee now, in high tax bracket). Looking at this thread, i am going to wind up company and get cash as Capital distribution. If I was to go down 2019 LC route - could i put the funds from my personal account into my personal pension, then net this off against the 130k loans i have outstanding?

Yeah, why not.

But I'm not impartial.

I want HM Rectums and C***s to get as little as possible.

[Iliketax]

I'm slightly worried that the only confirmation I have that the loan charge is relevant uk earnings is this freedom of information request. Is there anything else officially published that I can rely upon, and if not, are HMRC obliged to publish something on this before the 2018/19 tax year starts?

My personal view is that the legislation is clear.

There is nothing published that I am aware of that is explict it terms of the April 2019 loan charge and making pensions contributions. I know some people don't like HMRC's manuals but you could use them to follow the legislation through with your independent professional tax adviser. See, for example:

https://www.gov.uk/hmrc-internal-man...44100#earnings

then google what s7(2) ITEPA is and you may spot s7(6)(ba) ITEPA.

HMRC are not obliged to publish anything on this (in the same way that they are not obliged to publish anything that says that company car tax applies in the same way for red cars as it does for white cars).

Could they claim the FOI answer was a mistake?

The courts will have no regard whatsoever to an FOI answer that is just being given to be friendly.

Also, if the 2018/19 tax year starts and the rules are that the loan charge is relevant UK earnings and I make a big pension contribution; can the rules be changed in that year?

Imagine a surprise general election next February. The winner could change the tax laws any way they like (e.g. no tax relief for pension contributions made on or after noon today). I doubt that a new government would say that no relief would be given for pension contributions made before the date of the change. But no one knows for sure.

If they are then I fear the extra contributions, which would then be above net income, would be a mess to unwind. I think you can request a refund but I'm not 100% sure on this.

If someone asked me what the chance of getting your money out of a pension when you deliberately put it, I would say it would be much, much closer to 0% (unless you are over 55 and draw it out as a pension/PCLS). Definitely take independent professional advice.

[starstruck]

My personal view is that the legislation is clear.

There is nothing published that I am aware of that is explict it terms of the April 2019 loan charge and making pensions contributions. I know some people don't like HMRC's manuals but you could use them to follow the legislation through with your independent professional tax adviser. See, for example:

https://www.gov.uk/hmrc-internal-man...44100#earnings

then google what s7(2) ITEPA is and you may spot s7(6)(ba) ITEPA.

HMRC are not obliged to publish anything on this (in the same way that they are not obliged to publish anything that says that company car tax applies in the same way for red cars as it does for white cars).



The courts will have no regard whatsoever to an FOI answer that is just being given to be friendly.



Imagine a surprise general election next February. The winner could change the tax laws any way they like (e.g. no tax relief for pension contributions made on or after noon today). I doubt that a new government would say that no relief would be given for pension contributions made before the date of the change. But no one knows for sure.



If someone asked me what the chance of getting your money out of a pension when you deliberately put it, I would say it would be much, much closer to 0% (unless you are over 55 and draw it out as a pension/PCLS). Definitely take independent professional advice.

Thanks. Much appreciated.

The reason why I thought you could get it back is because I Googled and there are lots of references to this, e.g. here https://www.aegon.co.uk/support/faq/...ributions.html

"Where personal contributions (including third party contributions) have been made in excess of 100% of relevant UK earnings, (and in excess of £3,600, if tax relief is given by relief at source), the excess contributions aren’t entitled to receive tax relief, so they can be refunded by the provider or scheme. The refund is referred to by HM Revenue & Customs (HMRC) as a ‘refund of excess contributions lump sum’."

In the case where I pay a lump sum when the rules say LC19 counts as relevent UK earnings and then the rules are changed say and they aren't anymore then I have ended up paying in excess of 100% of relevant UK earnings - I guess the same can happen when people lose their jobs or if someone just adds up incorrectly. It seems that you can request the money back in this circumstance.

[Loan Ranger]

Thanks. Much appreciated.

The reason why I thought you could get it back is because I Googled and there are lots of references to this, e.g. here https://www.aegon.co.uk/support/faq/...ributions.html

"Where personal contributions (including third party contributions) have been made in excess of 100% of relevant UK earnings, (and in excess of £3,600, if tax relief is given by relief at source), the excess contributions aren’t entitled to receive tax relief, so they can be refunded by the provider or scheme. The refund is referred to by HM Revenue & Customs (HMRC) as a ‘refund of excess contributions lump sum’."

In the case where I pay a lump sum when the rules say LC19 counts as relevent UK earnings and then the rules are changed say and they aren't anymore then I have ended up paying in excess of 100% of relevant UK earnings - I guess the same can happen when people lose their jobs or if someone just adds up incorrectly. It seems that you can request the money back in this circumstance.

That'll work.

You've also got 6 years to request a refund, which covers you if HMRC try and pull any retrospective malarkey.

[Iliketax]

Thanks. Much appreciated.

Sorry, I read your original post to mean that you were worried that the pensions tax relief rules might change rather than the definition of relevant UK earnings being changed. In the case of the former, then I don't see any scope for getting refund.

In the case of the latter then I think it is very unlikely that the rules would change in this way. But it is possible that, for example, a new government could choose to:

(i) apply a lower limit from a particular date part way through a tax year, or

(ii) remove the April 2019 loan charge from counting.

My personal view is that it is unlikely that a government would do either. But who knows? It would certainly be much simpler from a conceptual basis just to restrict the quantum of the tax relief than to limit the earnings that count.

If the government were to choose to limit the amount of relevant UK earnings with immediate effect then they would have to think that through in a bit of detail (e.g. how does it work for self-employed and their basis periods). If they get to thinking about that kind of detail then they may well think about changing the excess contribution condition that governs this type of refund. So that won't necessarily help you get a refund.

One way of limiting this risk would be to ensure that the loan is waived at the same time that the contributions are paid (so as to trigger the DR charge sooner rather than later). Or pay the pension contributions as close to 5 April 2019 loan charge date as you can (but not after). For example, sometime after the Spring 2019 statement.

[starstruck]

One way of limiting this risk would be to ensure that the loan is waived at the same time that the contributions are paid (so as to trigger the DR charge sooner rather than later). Or pay the pension contributions as close to 5 April 2019 loan charge date as you can (but not after). For example, sometime after the Spring 2019 statement.

Loans were waived over a decade ago so not able to do the first, was planning on making the payment just before April 2019, just in case anything does change.

To provide some context I'm just trying to establish how risky the pension tax relief route is, e.g. have I understood it correctly? Is it likely to be (retrospective) changed? If it is changed last minute or retrospectively, can I unwind the pension payment? etc..

EDIT - it all seems above board and ok (pension payment), but it's a bit scary compared to settlement which is a known process and outcome.

[Iliketax]

To provide some context I'm just trying to establish how risky the pension tax relief route is, e.g. have I understood it correctly? Is it likely to be (retrospective) changed? If it is changed last minute or retrospectively, can I unwind the pension payment? etc..

EDIT - it all seems above board and ok (pension payment), but it's a bit scary compared to settlement which is a known process and outcome.

Pensions are a very emotional thing for any government. From an individual perspective, I'd say that any change are incredibly unlikely to apply before the date that they are announced. Some changes may come with anti-forestalling rules to stop people doing things prospectively to get around them (google - "high income excess relief charge" as an example of how this could stop large one off pension contributions but allow regular ones).

[starstruck]

Pensions are a very emotional thing for any government. From an individual perspective, I'd say that any change are incredibly unlikely to apply before the date that they are announced. Some changes may come with anti-forestalling rules to stop people doing things prospectively to get around them (google - "high income excess relief charge" as an example of how this could stop large one off pension contributions but allow regular ones).

Ok I see, thanks. As always, hugely appreciate your time. Can I ask, how do you personally think HMRC will perceive people that pay the loan charge and make a large pension payment as well. Do you think this will be considered a perfectly acceptable thing to do and is unlikely to attract their wrath, or do you think they will perceive it as further tax avoidance that needs clamping down on? It feels to me that it should be ok, but this whole thing has me so paranoid it worries me.

[Iliketax]

Ok I see, thanks. As always, hugely appreciate your time. Can I ask, how do you personally think HMRC will perceive people that pay the loan charge and make a large pension payment as well. Do you think this will be considered a perfectly acceptable thing to do and is unlikely to attract their wrath, or do you think they will perceive it as further tax avoidance that needs clamping down on? It feels to me that it should be ok, but this whole thing has me so paranoid it worries me.

Perfectly acceptable. But that's just my view. I've got no particular HMRC insight on this. I don't see that making a pension contribution is tax avoidance. If, for example, you planned to make the contribution and soon after take out a tax-free lump sum then that's a different proposition (google "pension lump sum recycling").

[phil@pmtc]

Perfectly acceptable. But that's just my view. I've got no particular HMRC insight on this. I don't see that making a pension contribution is tax avoidance. If, for example, you planned to make the contribution and soon after take out a tax-free lump sum then that's a different proposition (google "pension lump sum recycling").

I agree, I’d say 100% totally acceptable.
From the conversations I’ve had (with HMRC) they don’t see it as anything bad in the slightest. Mainly, as like iliketax has stated all along, legislation fully allows it.