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  • Tax

    S24 - pension contributions & childcare vouch

    Hello,

             Please could anyone with experience in the matter advise on whether any of the following effectively increase your tax free allowance, hence reduce the impact of S24 on your tax bill? If so, is it always the case or does it have to be entered in a specific way on your payslip? Just trying to put a spreadsheet together to assess the impact and hence what type of mortgage to go for! It doesn't half make things complicated!

    -Pension contributions

    -Childcare vouchers

    Thanks in advance

    Luke

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    Pensions can be used to extend your Tax allowance s especialy if you go into higher rate tax because ofS24

    but it all depends on your situation

    Self Employed ,Employed, or a full time landlord


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    Learn Change and Adapt ?????


    Hi there, I've also been wondering about this. Could I effectively put most of my PAYE income into a pension in order to keep me out of S24? 

    I have mixed income from being a landlord, ltd company and PAYE .

    For example:

    PAYE: 40,000

    BTL income after non financing expenses: 30,000

    Ltd software company profit: 10,000 (can remain in company)

    Holiday let: 5000 after all expenses.

    Much of the above has already been split with my wife who also has other self employed income, so there is enough in the pot. I'm 39 and would be happy to start building more of a pension, would this be a way of avoiding being caught out by s24?

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    I think you have two opitions but check

    You could use your 40K PAYE to fund your pension ? But you cant put in more then 40K

    Your Company could also pay into your Directors Pension and it would save Corp Tax

    But I am not sure if its limited with in the 40K so check it

    I use my Personal Pension via my self employment to fund my pension and it basically extends your lower tax band

    I think you are wise to use pensions we have all seen where S24 ect has left us

    So having a separate income in retirement is no bad thing

    and it may help you plan for IHT long term

    best of luck DL


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    Learn Change and Adapt ?????


    Thanks for the advice. It seems like a good way forward.

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    when one door closes another opens best of luck

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    Learn Change and Adapt ?????

    Is salary sacrifice still allowed for pension contributions!?

    If so that can be a useful way to reduce S24 liability or effects

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    Louise and her team of property tax specialists suggested:

    I know from talking to clients that they are not investing in pensions. There are a number of reasons why this is the case, here is a brief list of some of the common ones I hear:

    – They can’t get access to the money now and have to wait until they retire

    – Pensions themselves can be quite difficult to understand

    – Pension growth is seen to be small compared to other investments

    – The costs of running a pension are high

    Can you relate to the above?

    Are the above reasons why you are not investing in pensions right now?

    If you have answered yes to these questions then you might be surprised to learn you could be missing out.

    There are many advantages to pensions. These include:

    – Tax relief on pension contributions

    – The fact that income generated from the pension is tax-free

    – The capital growth of the pension will always be tax-free until you withdraw the investment

    – Pensions may be controlled by you to invest in commercial property

    What is a pension anyway?
    A pension, in short, is a pension scheme or arrangement whereby it provides benefits in one or more of the below circumstances:

    retirement
    death
    having reached a particular age
    serious ill-health or incapacity, or
    similar circumstances.
    Types of pension benefits
    The pensions tax legislation categorises the type of benefits a pension scheme will provide into the following four types of pension benefits:

    Defined benefit – these schemes should provide a set amount of benefit, where the amount of benefit does not depend on how much money is within the scheme. Final salary and career average schemes are examples of defined benefit schemes.

    Money purchase – also known as defined contribution. The amount of pension is not known in advance as it will depend on how much money is in the scheme. The size of the member’s pension pot in the scheme will depend on the amount that has been contributed to the scheme.

    Cash balance – these are a type of money purchase scheme. For the purposes of providing member benefits the rules are the same as for money purchase/defined contribution benefits. The difference between pure money purchase and cash balance is that the size of the member’s pension pot isn’t only dependent on the contributions that have been paid to the scheme.

    Hybrid – these schemes may provide either defined benefit, money purchase or cash balance benefits. Only when benefits are drawn will the form of the benefit be set.

    Types of pensions — employee contributions
    An employer pension scheme is often referred to as an occupational pension scheme and may provide benefits as outlined above for its employees under Section 150(5) of the Finance Act 2004 and Section 30 of the Finance (No 3) Act 2010.

    Employees can obtain tax relief on contributions they make from their own earnings into their pension up to a maximum of:

    £3,600 (for those not paying income tax); or
    the entirety of the member’s relevant UK earnings (up to the annual allowance)
    While those making pension contributions will benefit from tax relief on their contributions, this is limited to £40,000 per year (pension contributions annual allowances) and there is a lifetime contributions allowance of £1,250,000 (tax year 2014-15).

    You can go back two tax years and make pension contributions to utilise your annual allowance. Therefore you could, in effect, make £120,000 of pensions contributions in two years’ time.

    If you make pension contributions and are not part of a “salary sacrifice scheme” then you may only receive basic tax relief from the pension scheme. As such you will need to reclaim the additional tax if you are a higher rate or additional rate taxpayer on your self assessment. You’ll get a statement from your pension provider telling you how much tax you owe if you go above your lifetime allowance. Your pension provider will deduct the tax before you start getting your pension.

    Types of pensions — employer contributions
    Employers may make pension contributions for their employees. There is no limit to the amount of money that the employer may contribute on behalf of an employee.

    An employer’s contribution acts as a cost to reduce corporation tax

    Employers may reduce their corporation tax liability by the amount of money that they have invested into the pension as it is deemed that employer contributions are an allowable cost.

    Sections 307 and 308 of the Income Tax (Earnings and Pensions) Act 2003

    The contributions an employer makes to a registered pension scheme on behalf of an employee are exempt from being taxed as earnings for the employee. However, the employer’s contributions will count towards the member’s annual allowance limit, so the member may have to pay tax if the employer contributes too much.

    Where the employer is a company with investment business the employer contributions will be deductible as an expense of management (Chapter 2 of Part 16 of the Corporation Tax Act 2009).

    Payments made on behalf of directors and shareholders of the company

    Payments made on behalf of the directors/shareholders are considered to be wholly and exclusively for the purposes of the trade. As such these contributions will benefit from corporation tax relief.

    If you are part of an employer scheme and you personally make pension contributions, you are entering into a salary sacrifice arrangement whereby you get tax relief at source on pension contributions in each and every pay packet, be it weekly or monthly.

    Getting money out of a limited company
    Now you can see how you can genuinely get money out of a limited company through the employer contribution towards your pension.

    Practical steps you should now take to make the most of your pension

    Set up a registered pension (scheme administrator) through an agent or IFA, making sure they have permission from the Financial Conduct Authority (FCA)
    HMRC will then consider the pension registration and inform the employer/scheme administrator of their decision on whether to allow registration or not
    HMRC will provide a registration date of the pension

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    Simon Misiewicz | Business Development Manager

    Optimise Accountants

    Telephone: 0115 939 4606

    website: http://www.optimiseaccountants.co.uk