Bonus Sacrifice with Tapered Annual Allowance

TimMatthias

We have a client with a high enough salary to reduce his annual allowance to £10K, which his employer already pays into his pension.

He is about to receive a bonus of £80K, which he wants to pay into his pension and ask the scheme to pay the annual allowance charge, so Income Tax wise there isn't any benefit in doing this other than he won't need to pay it directly.

He is already close to LTA, so unlikely to be able to take 25% tax free at retirement.

Assuming the employer pays in any National Insurance saving, will this also be taxed at 45%?

Is there any point in doing this, compared to simply paying the tax and putting £40,000 into ISAs for him and his wife?

les_cameron

Whether there is a point or not will be dictate what their objectives are. The whole employer contribution will be excess (I'm assuming no carry forward).

They'll be suffering marginal rate tax (the AA charge) then marginal rate tax on the balance (and potentially an LTA charge depending on what happens ongoing) using the pension route. Non pension just the initial tax and then only need to worry about IHT killing it further. There's obviously venture capital schemes if they want some income tax relief / IHT benefit.

Just do the numbers both ways and one wil lbecome clear (I suspect pension isn't a good idea unless they have an IHT liability and/or are expecting to die pre 75)

TimMatthias

@les_cameron said:
Whether there is a point or not will be dictate what their objectives are. The whole employer contribution will be excess (I'm assuming no carry forward).

They'll be suffering marginal rate tax (the AA charge) then marginal rate tax on the balance (and potentially an LTA charge depending on what happens ongoing) using the pension route. Non pension just the initial tax and then only need to worry about IHT killing it further. There's obviously venture capital schemes if they want some income tax relief / IHT benefit.

Just do the numbers both ways and one wil lbecome clear (I suspect pension isn't a good idea unless they have an IHT liability and/or are expecting to die pre 75)

Thanks Les.