Pension contributions can be used to relieve LC19

[starstruck]

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.

I agree with all the above.

Pension money needs to be found before April 2019 (approx. 1 year away)
Tax needs to be found before Jan 2020 (approx 2 years away)

I think TPP would be taking the p%ss!

Really my only concerns (other than finding the money) are:

1) Will HMRC pull the loan charge being relevant earnings; meaning pension contributions can't be used? Retrospectively?
2) Will there ever be a Loan Charge 2 that applies on top of this one?
3) What happens with the IHT situation?

^ Settlement removes all these concerns - but costs tons more!

[phil@pmtc]

I agree with all the above.

Pension money needs to be found before April 2019 (approx. 1 year away)
Tax needs to be found before Jan 2020 (approx 2 years away)

I think TPP would be taking the p%ss!

Really my only concerns (other than finding the money) are:

1) Will HMRC pull the loan charge being relevant earnings; meaning pension contributions can't be used? Retrospectively?
2) Will there ever be a Loan Charge 2 that applies on top of this one?
3) What happens with the IHT situation?

^ Settlement removes all these concerns - but costs tons more!

1/. Not retrospectively but there is a slight chance pension relief will be altered before then (or even removed). Highly unlikely but I don’t think impossible.

2/ no

3/dealt with case by case basis is best can state on this.

[Loan Ranger]

When using the calculator, click on Advanced and select Private Plan.

https://www.uktaxcalculators.co.uk

This enables you to enter your net pension contribution, and the figures make more sense.

[Loan Ranger]

If you have total income in 2018/19 of £100,000 then you only need to contribute £70,520† to a pension to get maximum tax relief.

The pension provider will reclaim £17,630 on your behalf.

You would then have to pay the same £17,630 through self-assessment.

Total amount of cash needed = £70,520 + £17,630 = £88,150

All of that £88,150 will end up in your pension.

† 80% * (£100,000 - £11,850 personal allowance)

[starstruck]

I see what you mean. The tax legislation is actually quite clear on this.

I've commented on pensions a few other times. It will be very fact specific whether it is a good idea to make personal pension contributions to offset the loan charge, especially if (i) you are close to the LTA, (ii) you are likely to be a 40% / 45% taxpayer in retirement, (iii) your limited company could make them. Other things that matter is whether you can afford them, how close to retirement you are (to be able to get the PCLS without being in the recycling rules) and your attitude to pensions.

To save another question, if the limited company can make them then the question is whether you should be using your own cash that's already been taxed to make tax-relievable contributions vs how you will otherwise get cash out of the company in the future (in both cases assuming the same gross amount goes into the pension).

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?

Could they claim the FOI answer was a mistake?

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? 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.

[Loan Ranger]

I don't think HMRC would have provided that FOI response if there was any doubt.

It's unlikely they are going to broadcast the fact that their flagship LC19 can be "avoided" by making pension contributions.

I suppose there is a theoretical risk that the rules could be changed but you could always leave it right until the end of the tax year to pay in.

[starstruck]

It's unlikely they are going to broadcast the fact that their flagship LC19 can be "avoided" by making pension contributions.

I've been thinking about this recently and it's not really avoiding it though.

You still have income tax applied to the loans. And you have to remember the money going in to the pension has already been taxed, so the relief is already available on that. Plus there is still tax to pay on the way out of the pension as well (and who knows what tax rates/regime will exist then).

If I hadn't used a scheme I could carry forward the same pension amount and pay into my SIPP from my Ltd and save a load of tax there, or if I was a permanent employee on a large salary I could make a big pension payment and save tax there. Using it to "offset" the loan charge means I lose those opportunities.

So it's not a silver bullet, but yes, to me it does seem like a happy compromise between the extremes
of voluntary settlement and litigation.

[Loan Ranger]

I've been thinking about this recently and it's not really avoiding it though.

Maybe not, but it feels a lot better than handing over your life savings to HM Robbers and Crooks.

[starstruck]

Maybe not, but it feels a lot better than handing over your life savings to HM Robbers and Crooks.

Absolutely!

[Pennydroppers]

pension

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?