Reply to: SIPPs and tax relief.

[Fred Bloggs]

HL are making gloomy noises about the prospects of ending 40% relief on pension contributions. I don't care, my Ltd Co makes the payments, but I guess they'll be next under the cosh when Mr Broon gets another term in number 10.

[Fred Bloggs]

You aren't really paying 100% of your salary. If your salary is say 10K and that is paid out as a wage with NI deducted then the 'unofficial rule' is you can make a direct gross payment of 10K from your Ltd into a SIPP and no questions will be asked.

I would make much bigger payments if I knew I'd get away with it, infact I'd pay the whole lot into a SIPP and pay no tax or NI but I think this would get the taxman excited.

Within the next 8 years (I'm 52) that is EXACTLY what I plan to do for the 4 or 5 years before I finally retire.

[DimPrawn]

Higher rate tax relief has already been removed for anyone earning over £130K.

http://www.moneymarketing.co.uk/pens...003655.article

I'm guessing the next budget however, being a Labour pre-election one won't raise taxes much, infact probably a bumper giveaway of cash to proles.

Come the next budget mind and I can see all tax relief removed from everything when Labour are safely back in.

[MrC]

A year on since this thread was last active and with another budget looming I'd be interested to hear up to date opinions to the questions posted by the OP:

I know some people here are actively using the fact that this is a huge legit IR35-safe tax break. I want to ask for a couple of predictions:

1. Will the next Budget remove Higher Rate Tax Relief for individual contributions to a SIPP?

2. Will a similar hit be applied to Company contributions too?

My guesses are:
1. Yes.
2. Not yet. They'll spot it later and come back in the Autumn for that.

[Gonzo]

can anyone confirm that taking the majority of your remuneration via a sipp is fine?

In "General" ? Are you having a laugh? Try the legal and accounting forum but expect a flaming because this has been covered before and the rules haven't changed recently.





You can't put the majority of your earnings into a pension because there is a contribution limit of £225,000 per year.


threaded

[mrdonuts]

can anyone confirm that taking the majority of your remuneration via a sipp is fine?

[mrdonuts]

i thought it had been established that you can include a sipp pension payment as part of your salary , with upper limit of £225000 per year and that £10k cash £70k sipp was fine

[expat]

It's virtually guaranteed that the relief will be limited to basic rate tax, I blieve, very soon.

I also foresee legislation being made against "immediate vesting pension contributions"*** that are being pushed by the likes of Hargreaves Lansdown to those who are over 50 (55 after 2010) as a way of sort of having your cake and eating it too. I can see why the great unwashed would view them as being "unfair".

*** HL (and others) websites.

I'd guess that too. But if they wipe the possibility of deferring tax until my rate is lower, and mess with the 25% lump sum, I don't think I'll bother.

[Cyberman]

There is a logic: many of us could expect the pansion payouts to be taxed at only 20%, where the contributions attract 40% relief. That indeed is the big attraction for me. Most working people will not get that: the average person will get 20% relief on contributions and 20% tax on payouts, I get 40% relief and 20% tax on payouts.

I can quite see why politicians would call that "unfair". I don't like the logic, but I do see it.

.. but if you tax contributions on money-purchase schemes you reduce the potential growth enormously, just as Brown did since 1997 with his dividend tax-credits stealth tax.
Thus you further diminish the benefits of a pension at a time when they are poo anyway and people will eschew them and simply rely on the state at age 65. HMG then loses potential tax benefits from an ageing population and will put even more burdens on the workers of the future.
That is crazy, but I would not put it past a short-sighted socialist HMG which is only concerned about filling a black hole that is burgeoning daily.



It is just so stupid and there IS NO LOGIC so I just have to laugh !!

[Fred Bloggs]

It's virtually guaranteed that the relief will be limited to basic rate tax, I blieve, very soon.

I also foresee legislation being made against "immediate vesting pension contributions"*** that are being pushed by the likes of Hargreaves Lansdown to those who are over 50 (55 after 2010) as a way of sort of having your cake and eating it too. I can see why the great unwashed would view them as being "unfair".

*** HL (and others) websites.

[expat]

Pensions are taxed when they are paid out from age 55 onwards when you draw them. Thus there is no logic in taxing the contributions, so I see this as pure scaremongering.

There is a logic: many of us could expect the pansion payouts to be taxed at only 20%, where the contributions attract 40% relief. That indeed is the big attraction for me. Most working people will not get that: the average person will get 20% relief on contributions and 20% tax on payouts, I get 40% relief and 20% tax on payouts.

I can quite see why politicians would call that "unfair". I don't like the logic, but I do see it.

[Cyberman]

This is not impossible: in some countries (e.g. France that I know about) you either have a status of "Retired" or you do not: if you are Retired you can't work, and if you are not Retired then you can't get the tax breaks yet.

France have many stupid rules to try to protect jobs and thus for instance introduced a 35 hour working week in 1997.
It does not make sense to stop people working when you have a demographic shortage of workers looming. Just because somebody is drawing a pension does not mean that that pension will be enough to sustain them, especially in the UK, and they may well need to earn additional income over time. In addition, pensioners would probably be paying extra into the exchequer which any HMG should welcome.

[Tensai]

If one of the primary ways out of this recession is for people to start spending again, then logically the government will pretty soon start disincentivising people to stash their cash in the bank by reducing tax breaks.

Discuss/ridicule/abuse (delete as appropriate.)

[Cyberman]

Pensions are taxed when they are paid out from age 55 onwards when you draw them. Thus there is no logic in taxing the contributions, so I see this as pure scaremongering.

However, if you were paying in millions in order to avoid tax then maybe HMG would act there, but this will not affect any of us I would guess !!

[expat]

I think both are unlikely - too obvious a tax grab. A future goverment is more likely to tinker with the lifetime allowances, 25% lump sum limit, age related tax bands and actuarial/annuity tables to squeeze some more pips out of its pensioners.

I don't agree about loss of HRT relief being unlikely. ISTM that loss of HRT relief is a 100%-er medium term, many politicians (e.g. Vince Cable) are already talking about how it is "unfair" that higher earners get higher tax relief on their pensions too.

If you run a Ltd Co then obviously that's easily sidestepped by having the Ltd Co make company contributions, which are paid in gross of PAYE and indeed NICs. So I would expect that "loophole" to be picked up sooner or later.

I do agree about the 25% lump sum, at least for those still in work. I can't help but notice that it is no longer called "tax-free lump sum", but " pension commencement lump sum". They will do something with that, whether it is to remove it, to force it into an annuity, or at least to allow it only to those who "really" retire, i.e. don't work any more.

This is not impossible: in some countries (e.g. France that I know about) you either have a status of "Retired" or you do not: if you are Retired you can't work, and if you are not Retired then you can't get the tax breaks yet.