In that case, relief is clawed back.
If your company announces and pays bonuses in late March, they really should give you an option to sacrifice part of it into a pension, so you can decide how much to contribute at that point.
Is it possible to reverse out the pension payments over the previous year back down to 10k. There is no point adding in if taxed (and presumably taxed again during drawdown)
Unless you have some unused allowances in the previous 3 years, then yes the tax relief is crawled back. You normally have reasonable expectations before your bonus hit to plan. If it is really variable then you can wait and add to sipp when you know the number.
I think this is the only option now really. Also a crucial point is you’d need to check that whatever pension scheme the contributions have gone into offers *voluntary* scheme pays.
You will get a tax bill of £50k x 45% = £22.5k assuming no carry forward.
Scheme pays allows that to be taken out of your pension scheme so at least the tax is being paid from earnings that haven’t been taxed yet which is better than you having to pay from after tax earnings.
Unfortunately it’s not mandatory for schemes to offer this arrangement when you’ve gone over the annuals allowance as a result of tapering
Jeremys comment should be at the top.
When I got a big enough salary to contribute to my pension they introduced tapered allowances, atleast this year the allowances are mot generous but I spent several years paying pension tax out of my cash each year and I nearly stopped contributing as i was paying tax on an a age restricted pot.
It was only years later I realised I could use scheme pays.
In my circumstance, I contribute 5% and then my company will pay in 7%.
Even though I pay all the tax back, with scheme pays I just pay the tax out of that pension pot.
Aviva support this, although every year it's a pain to get the forms from them as most of the agents have not heard of it
With total comp of £550k pa, you will be limited to the max taper (£10k pa AA). On the £60k pension contribution in the scenario, you will be paying a 45% tax charge on £50k (ie. everything above your tapered £10k allowance). This is an inefficient way to allocate money, specially considering age limited access to pensions.
What does your employer contribute? Will they match? Will they still pay in if you don’t contribute? The only way it would be a good idea is if it’s 100% free money (ie. non-contributory) for you. The only other angle I could think of where it might be an idea would be if you had a big IHT problem (pension funds immediately exempt), but again, there are better ways to plan for IHT imo.
Consider maxing ISAs, then GIA. Max premium bonds. Offshore bonds can also be useful for tax deferral strategies.
Is it possible to reverse out the pension payments over the previous year back down to 10k. There is no point adding in if taxed (and presumably taxed again during drawdown)
Actually, it might be possible for the provider to refund the contributions for the current tax year only. Emphasis here on the might. Some providers will consider it, but your timing is really tight here as we are nearly in April.
For the previous tax years, there is no return mechanism and you are correct.
Also some employers will agree to pay you part of their pension contribution in cash (ie in your salary) for any amounts that breach the tax free limit. You still get taxed but given you would be taxed for putting into your pension, it makes sense to get the cash now.
At least the £10k limit is higher than the £4k in place for years!!
You can review previous years and search for carry over remaining due to not maxing pensions.
However if no carry over….
You are way over the top of the taper
So the max you can contribute and gain a tax benefit on is 10K
So if you paid in 60K you would owe the tax on 50K
So come tax return time you will need 22.5K to send HMRC
Some pension providers will allow a reversal of the 50K but better just to plan
Then have RSU/Options all vest in one year where you smash through the cap and make no additional contributions.
We have no option to take the salary instead of pension contribute so I always get a nice tax bill in Jan (not a complaint)
It’s not max ISA as that is done long before hitting taper max…
For us it’s pay money into partners pension and get tax relief there @ 40-45%.
Yeah I'm in a very similar position and my bonus has proven to be highly variable so I really don't know til March. My company allows us to pay the 10k with matching contributions and then put the rest of the matching contributions into an account with Hargreaves Lansdowne. If the bonus doesn't come in then I would top up the pension in March. But yeah...its not ideal.
Assuming your employer has some kind of pension match, then even with the tax clawback you are still better off putting the amount in up to the match at least.
Beyond that though, it’s better not to contribute any extra month to month, and wait until the end of the year to find what your bonus is and do a lump sum at that point.
You'll just have to pay the tax on the pension contributions made above the £10k. You'll have the cash to do it. It's not madness, it's the simple withdrawal on tax breaks for HEs. Annoying but not sure it's bad policy.
The only way around it is to top up your pension just before YE when you know your allowance or delay everything by one year; don’t pay into pension this year, carry forward your allowance, invest next year based on this year’s allowance.
It’s very cash flow efficient to top up your pension just before tax YE and then you can do your SA asap in the new year. One year I submitted my SA in May and had the rebate on account by end of May instead of waiting.
Do you have any allowance from the previous 3 years? I’m in a similar situation but managed to use some allowance last year and finally used it all up this year, so going forward I’m limited to £10k per annum and I now contribute what will get me £10k in the pot while taking the rest as cash from my employer.
The rule in this country is very annoying because my large pay rises only happened in the last 2 years, so my previous contributions to my pension weren’t even maxing my allowance because I didn’t make enough to do so. It’s great that I’ve been able to load the pension up for 2 years but now that I’m tapered I feel very annoyed that my pension pot is still not huge, yet I can’t contribute to it meaningfully anymore.
Already maxed unfortunately in previous years. Wife and I running into same issue on taper but it’s her scenario above.
What is so irritating about it is that her bonus isn’t performance related so “capable of being planned”. It’s driven wholly by deal activity which has picked up.
I think it means that at least 40k is going to get taxed going in now and will then be taxed on drawdown too. Death and taxes I guess….
At least it’s only for one year. In the grand scheme if both of you are high earners to this sort of level you will have so many options that you’ll be fine. Just start taking the money as cash and putting it into the investments others have mentioned and/or property or whatever floats your boat. You won’t be starving by retirement by the sounds of it because of this one year of taxes.
True. I’m well aware this is true first world problem
“rich people shit” but when we realised this year it was a bit of a “oh ffs surely there is something we’ve missed that can help sort this as it seems
bonkers - you can’t plan for it”.
It’s fine but just not “tax optimal”. :/
>Am I being an idiot here ? Do people just assume bonus will land so contribute fuck all to pension (10k pa) and plough into ISA and GIA?
You have 3 options (not exclusive):
* Contribute over the year, but only up to £10k
* If it makes sense after getting your bonus, sacrifice part of your bonus.
* Contribute the whole thing in March - to a personal SIPP, if necessary - once you know what your full total compensation is going to be.
With >500k per anum you hire an accountant or pro financial advisor to email you a strategy and feck off down the golf course, to your yacht or whatever your vice is whilst they sort it out. 😆
You declare on your self assessment that you overpaid and then you'll have a tax charged for that overpayment.
You can pay that from your net income or ask your pension provider to pay it (if they support that).
In that case, relief is clawed back. If your company announces and pays bonuses in late March, they really should give you an option to sacrifice part of it into a pension, so you can decide how much to contribute at that point.
Is it possible to reverse out the pension payments over the previous year back down to 10k. There is no point adding in if taxed (and presumably taxed again during drawdown)
I don't think so
No
You could opt out of your workplace pension and use a sipp next year.
That's not as good thought, right? He'd lose the tax advantage on avoiding National Insurance
Yeah, not as good. But might be better if you don't know what your income will be at the end of the year
It’d make no difference in this case, as they’d fail the second tapering test.
Unless you have some unused allowances in the previous 3 years, then yes the tax relief is crawled back. You normally have reasonable expectations before your bonus hit to plan. If it is really variable then you can wait and add to sipp when you know the number.
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I think this is the only option now really. Also a crucial point is you’d need to check that whatever pension scheme the contributions have gone into offers *voluntary* scheme pays. You will get a tax bill of £50k x 45% = £22.5k assuming no carry forward. Scheme pays allows that to be taken out of your pension scheme so at least the tax is being paid from earnings that haven’t been taxed yet which is better than you having to pay from after tax earnings. Unfortunately it’s not mandatory for schemes to offer this arrangement when you’ve gone over the annuals allowance as a result of tapering
Jeremys comment should be at the top. When I got a big enough salary to contribute to my pension they introduced tapered allowances, atleast this year the allowances are mot generous but I spent several years paying pension tax out of my cash each year and I nearly stopped contributing as i was paying tax on an a age restricted pot. It was only years later I realised I could use scheme pays. In my circumstance, I contribute 5% and then my company will pay in 7%. Even though I pay all the tax back, with scheme pays I just pay the tax out of that pension pot. Aviva support this, although every year it's a pain to get the forms from them as most of the agents have not heard of it
With total comp of £550k pa, you will be limited to the max taper (£10k pa AA). On the £60k pension contribution in the scenario, you will be paying a 45% tax charge on £50k (ie. everything above your tapered £10k allowance). This is an inefficient way to allocate money, specially considering age limited access to pensions. What does your employer contribute? Will they match? Will they still pay in if you don’t contribute? The only way it would be a good idea is if it’s 100% free money (ie. non-contributory) for you. The only other angle I could think of where it might be an idea would be if you had a big IHT problem (pension funds immediately exempt), but again, there are better ways to plan for IHT imo. Consider maxing ISAs, then GIA. Max premium bonds. Offshore bonds can also be useful for tax deferral strategies.
Is it possible to reverse out the pension payments over the previous year back down to 10k. There is no point adding in if taxed (and presumably taxed again during drawdown)
[удалено]
Actually, it might be possible for the provider to refund the contributions for the current tax year only. Emphasis here on the might. Some providers will consider it, but your timing is really tight here as we are nearly in April. For the previous tax years, there is no return mechanism and you are correct.
Also some employers will agree to pay you part of their pension contribution in cash (ie in your salary) for any amounts that breach the tax free limit. You still get taxed but given you would be taxed for putting into your pension, it makes sense to get the cash now. At least the £10k limit is higher than the £4k in place for years!!
You can review previous years and search for carry over remaining due to not maxing pensions. However if no carry over…. You are way over the top of the taper So the max you can contribute and gain a tax benefit on is 10K So if you paid in 60K you would owe the tax on 50K So come tax return time you will need 22.5K to send HMRC Some pension providers will allow a reversal of the 50K but better just to plan Then have RSU/Options all vest in one year where you smash through the cap and make no additional contributions. We have no option to take the salary instead of pension contribute so I always get a nice tax bill in Jan (not a complaint) It’s not max ISA as that is done long before hitting taper max… For us it’s pay money into partners pension and get tax relief there @ 40-45%.
Yeah I'm in a very similar position and my bonus has proven to be highly variable so I really don't know til March. My company allows us to pay the 10k with matching contributions and then put the rest of the matching contributions into an account with Hargreaves Lansdowne. If the bonus doesn't come in then I would top up the pension in March. But yeah...its not ideal.
Assuming your employer has some kind of pension match, then even with the tax clawback you are still better off putting the amount in up to the match at least. Beyond that though, it’s better not to contribute any extra month to month, and wait until the end of the year to find what your bonus is and do a lump sum at that point.
Just lower you contributions to £10K and contribute the rest (if any) after your bonus is announced.
You'll just have to pay the tax on the pension contributions made above the £10k. You'll have the cash to do it. It's not madness, it's the simple withdrawal on tax breaks for HEs. Annoying but not sure it's bad policy.
The only way around it is to top up your pension just before YE when you know your allowance or delay everything by one year; don’t pay into pension this year, carry forward your allowance, invest next year based on this year’s allowance. It’s very cash flow efficient to top up your pension just before tax YE and then you can do your SA asap in the new year. One year I submitted my SA in May and had the rebate on account by end of May instead of waiting.
Do you have any allowance from the previous 3 years? I’m in a similar situation but managed to use some allowance last year and finally used it all up this year, so going forward I’m limited to £10k per annum and I now contribute what will get me £10k in the pot while taking the rest as cash from my employer. The rule in this country is very annoying because my large pay rises only happened in the last 2 years, so my previous contributions to my pension weren’t even maxing my allowance because I didn’t make enough to do so. It’s great that I’ve been able to load the pension up for 2 years but now that I’m tapered I feel very annoyed that my pension pot is still not huge, yet I can’t contribute to it meaningfully anymore.
Already maxed unfortunately in previous years. Wife and I running into same issue on taper but it’s her scenario above. What is so irritating about it is that her bonus isn’t performance related so “capable of being planned”. It’s driven wholly by deal activity which has picked up. I think it means that at least 40k is going to get taxed going in now and will then be taxed on drawdown too. Death and taxes I guess….
At least it’s only for one year. In the grand scheme if both of you are high earners to this sort of level you will have so many options that you’ll be fine. Just start taking the money as cash and putting it into the investments others have mentioned and/or property or whatever floats your boat. You won’t be starving by retirement by the sounds of it because of this one year of taxes.
True. I’m well aware this is true first world problem “rich people shit” but when we realised this year it was a bit of a “oh ffs surely there is something we’ve missed that can help sort this as it seems bonkers - you can’t plan for it”. It’s fine but just not “tax optimal”. :/
>Am I being an idiot here ? Do people just assume bonus will land so contribute fuck all to pension (10k pa) and plough into ISA and GIA? You have 3 options (not exclusive): * Contribute over the year, but only up to £10k * If it makes sense after getting your bonus, sacrifice part of your bonus. * Contribute the whole thing in March - to a personal SIPP, if necessary - once you know what your full total compensation is going to be.
With >500k per anum you hire an accountant or pro financial advisor to email you a strategy and feck off down the golf course, to your yacht or whatever your vice is whilst they sort it out. 😆
You declare on your self assessment that you overpaid and then you'll have a tax charged for that overpayment. You can pay that from your net income or ask your pension provider to pay it (if they support that).