Pension contributions can be used to relieve LC19

[Loan Ranger]

I suspect if a lot of people did this, and by a lot I mean many thousands, then it might create a problem for HMRC. They might be forced to continue pursuing the original tax dispute to collect the target several £billion revenue.

However, if relative few people do it, then I don't think it will be an issue.

I firmly believe LC19 is a line in the sand for HMRC, and a way of putting this whole 20-year loan scheme fiasco to bed.

[starstruck]

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.

That's very reassuring, thanks Iliketax and Phil.

[Pennydroppers]

do pension contributions include the pre-tax amounts i salary sacrifice via my (now) permanent employer? Or does the amount just apply to my post-tax contributions to personal pension I have from my contracting days?

[Loan Ranger]

do pension contributions include the pre-tax amounts i salary sacrifice via my (now) permanent employer? Or does the amount just apply to my post-tax contributions to personal pension I have from my contracting days?

Your total income in the 2018/19 tax year will be your salary plus the loans.

Eg. your salary next year will be £50k. You received loans of £100k, in your previous contracting days, through a scheme. You'll have to declare £150k through self-assessment.

Anything you pay into a pension will offset the tax.

[Pennydroppers]

Your total income in the 2018/19 tax year will be your salary plus the loans.

Eg. your salary next year will be £50k. You received loans of £100k, in your previous contracting days, through a scheme. You'll have to declare £150k through self-assessment.

Anything you pay into a pension will offset the tax.

So here's my example:

£95k salary (with max pension contributions)
£20k bonus (sacrifice entire amount into pension again).
historic loans of £130k

sacrifice entire bonus in 18/19 into Work pension. close down limited company and extract ~60k. if i contribute 60k to my personal pension, The difference is 70K i pay tax on between 40-45%. This is 28k of tax vs ~50k that HMRC want for full settlement. The issue i have with this, is that paying the loan charge would not bring closure.

What's to stop HMRC applying the loan charge to EVERY tax year as long as the loans are still outstanding!!?? Has this been discussed before?

can anyone recommend a solid tax advisor?

[Loan Ranger]

What's to stop HMRC applying the loan charge to EVERY tax year as long as the loans are still outstanding!!?? Has this been discussed before?

You mean they charge you tax on the loans in 2018/19 and then they do it again in 2019/20 and then in 2020/21 etc?

I'm pretty sure there is a provision to prevent double taxation but maybe Iliketax, Phil or webberg can confirm.

[phil@pmtc]

So here's my example:

£95k salary (with max pension contributions)
£20k bonus (sacrifice entire amount into pension again).
historic loans of £130k

sacrifice entire bonus in 18/19 into Work pension. close down limited company and extract ~60k. if i contribute 60k to my personal pension, The difference is 70K i pay tax on between 40-45%. This is 28k of tax vs ~50k that HMRC want for full settlement. The issue i have with this, is that paying the loan charge would not bring closure.

What's to stop HMRC applying the loan charge to EVERY tax year as long as the loans are still outstanding!!?? Has this been discussed before?

can anyone recommend a solid tax advisor?

Not sure i fully follow but if I'm right:

Your income for 18/19 would be 95+20+130 = 245k.
Your basis rate of tax would be extended by 80k(?) pension payments so your figures need to be calculated on that basis.
Loan charge would, in my opinion, be the end of the matter (leaving aside potential IHT issues).

[Albert49]

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").

Why do you think this would be an issue, I had planned to use CLSO2 to settle my open years (to be paid circa sep 18) , but in april 18 make a large pension contribution to reduce tax due on my closed years which would be caught by the LC, and since I am over 55, withdraw 25% of my pension pot and then use that towards my CLSO2 bill , why would that be classed as recycling ? I am not using my pension withdrawal to make a further pension contribution.

[Iliketax]

Why do you think this would be an issue, I had planned to use CLSO2 to settle my open years (to be paid circa sep 18) , but in april 18 make a large pension contribution to reduce tax due on my closed years which would be caught by the LC, and since I am over 55, withdraw 25% of my pension pot and then use that towards my CLSO2 bill , why would that be classed as recycling ? I am not using my pension withdrawal to make a further pension contribution.

Have a read of some of the stuff that comes up after you google "pension lump sum recycling".

[Delendog]

Have a read of some of the stuff that comes up after you google "pension lump sum recycling".

I cant see that this would apply in this example the TFC is not paying back into the pension it is being used to pay the tax bill.