Worth stuffing your pension before the budget?
Discussion
Coincidentally just received this from a WM who has just sent this out to all on their mailing list presumably.
Ahead of the Budget later this month, rumours are building that the Chancellor will reduce the tax benefits of salary sacrifice pension schemes in the upcoming Autumn Budget. This could mean that employer pension contributions, which are currently exempt from National Insurance, may soon have to pay NI after every contribution over £2,000 per year.
You may be able to act now to save yourself a potential hike in tax on your contributions this financial year, but the window of time in which to do so is shrinking fast.
The Situation
Currently, all company-sponsored pension contributions avoid both income tax and National Insurance. If the proposed changes go ahead, any contributions above £2,000 would attract National Insurance at the standard rates (8% on salaries below £50,270 and 2% above that).
If you are planning to make the maximum £60,000 employer pension contribution this tax year, doing so now incurs no National Insurance. Therefore, it could make sense to expedite the contribution and make it before the announcement on Wednesday 26 November, rather than waiting for the end of the tax year.
If you wait until after the Budget, that same contribution could attract up to £9,860 of additional tax, made up of:
● Employer NI: 15% on £58,000 = £8,700
● Employee NI: 2% on £58,000 = £1,160 (assuming earnings above £50,000)
To put it another way: that’s a total potential saving of £9,860 if you take action before 26 November.
Who Can Benefit?
● Individuals operating through a service company, or those with a company holding surplus cash who can invest into a personal pension.
● Employees with supportive employers offering salary or bonus sacrifice arrangements, who can bring forward planned contributions in the next two weeks.
And don’t forget about the carry forward rules – in some cases, you may be able to contribute up to £220,000 this year if you haven’t contributed during previous years. So, you’re able to contribute (this year’s £60k allowance + the previous two years’ £60k allowance + the prior year’s allowance at £40k.
If this applies, acting now could save as much as £37,060 in tax and National Insurance if anything changes after the Budget. That’s pretty significant!
Hopefully this information can prevent you from losing out on this opportunity to lock in your pension contributions at the current rate of tax. You’ve only got a small window of opportunity here, as it’s possible an announcement of this kind could be enforced immediately, so speak to your employer or financial adviser about it sooner rather than later.
Ahead of the Budget later this month, rumours are building that the Chancellor will reduce the tax benefits of salary sacrifice pension schemes in the upcoming Autumn Budget. This could mean that employer pension contributions, which are currently exempt from National Insurance, may soon have to pay NI after every contribution over £2,000 per year.
You may be able to act now to save yourself a potential hike in tax on your contributions this financial year, but the window of time in which to do so is shrinking fast.
The Situation
Currently, all company-sponsored pension contributions avoid both income tax and National Insurance. If the proposed changes go ahead, any contributions above £2,000 would attract National Insurance at the standard rates (8% on salaries below £50,270 and 2% above that).
If you are planning to make the maximum £60,000 employer pension contribution this tax year, doing so now incurs no National Insurance. Therefore, it could make sense to expedite the contribution and make it before the announcement on Wednesday 26 November, rather than waiting for the end of the tax year.
If you wait until after the Budget, that same contribution could attract up to £9,860 of additional tax, made up of:
● Employer NI: 15% on £58,000 = £8,700
● Employee NI: 2% on £58,000 = £1,160 (assuming earnings above £50,000)
To put it another way: that’s a total potential saving of £9,860 if you take action before 26 November.
Who Can Benefit?
● Individuals operating through a service company, or those with a company holding surplus cash who can invest into a personal pension.
● Employees with supportive employers offering salary or bonus sacrifice arrangements, who can bring forward planned contributions in the next two weeks.
And don’t forget about the carry forward rules – in some cases, you may be able to contribute up to £220,000 this year if you haven’t contributed during previous years. So, you’re able to contribute (this year’s £60k allowance + the previous two years’ £60k allowance + the prior year’s allowance at £40k.
If this applies, acting now could save as much as £37,060 in tax and National Insurance if anything changes after the Budget. That’s pretty significant!
Hopefully this information can prevent you from losing out on this opportunity to lock in your pension contributions at the current rate of tax. You’ve only got a small window of opportunity here, as it’s possible an announcement of this kind could be enforced immediately, so speak to your employer or financial adviser about it sooner rather than later.
The current rumour is that there will be a significant reduction in the NI savings available via salary sacrifice. As mentioned above, it's hard to see how that could be implemented before the next tax year.
So if you want to fill your pension under the current SS/NI regime then there are only 4 more monthly payrolls available to make contributions in this way before the end of this tax year.
The contributions you can make each month via SS will be limited to your gross monthly salary less national minimum wage.
So if you want to fill your pension under the current SS/NI regime then there are only 4 more monthly payrolls available to make contributions in this way before the end of this tax year.
The contributions you can make each month via SS will be limited to your gross monthly salary less national minimum wage.
LeoSayer said:
The contributions you can make each month via SS will be limited to your gross monthly salary less national minimum wage.
Unless it’s through a ltd director route, in which case it’s £60k regardless.If they do bring in the 15% NI company contributions in this way will only save the difference between that and the corp tax. Not much.
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