Chapter 1 - Contributing to Pensions Flashcards
Pension Contributions
As much as like
Tax Relief limited £3600 if no Rel Earnings or 100% of RE
Under 75 for contributions
UK Resident 5 years when became member or overseas/spouse
Tax Relief
At SOURCE. Cont paid net
Provider reclaims 20% rest via self asses eg 20%
Employer scheme. Net pay method (Net is not Normal)
Highest marginal rate relief
RAC relief through claim
Employer cont. paid gross Wholly and exclusively.
Spreading £500,000 and up
Annual Net adjusted Income
Total grossed up income from all sources.
Less deductions, eg charity, trading losses.
Pension cont can reduce ANI to reduce tax.
ANI over £100k… PA lost £1 for every £2 of ANI. All lost at £123,700. PA £11,850
PCLS Recycling
Unauthorised payment (charged) if ALL..
- All PCLS received last 12 months is over £7500
- If significantly greater than normal
- Significantly greater Extra conts more than 30% PCLS
- Cumulative sum >30% of PCLS
- If contributions can be made by member or someone else
- Recycling pre planned
Advantages of Pensions in Later Life
Potential Tax Relief Possible restoration of Personal Allowance Boost retirement funds. Bigger pot Out of estate cash Gifting out of estate out of income.
Disadvantages in Later Life
Short time frame. Need medium or high ATR
No Tax Relief after age 75
Pension income means tested (Care not bonds)
Advice costs money (Complex rules)
Pension Input Period
Run in line with tax year. Cant be changed.
Input amount is total gross for MP.
Not in year of death. Or terminal illness
For DB…increase in value of benefits with CPI and factor of 16.
Eg… if benefit increase is £5000 from £20k…
£20k x 16 = £320k
£25k x 16 = £400k
So…annual allowance input amount is £80k
Annual Allowance Charge
Annual Allowance is £40k.
If input exceeds allowance. Excess charged at persons marginal rate. If more than £2k, scheme might pay, BUT subject to input value being greater than AA.
and pension benefits may be reduced to compensate.
Annual Allowance
Was £215k. 2010/11 reduced to £50k with 3 carry forward years. Now £40k.
MPAA
£4k only once benefits been accessed.
AA - the past.
Carry forward. 3 tax years.
Must have been member of reg scheme.
Must use current year first. Then chronological order.
Does not need to have UK RE.
AA - 2015/16
Transitional. PIP now for tax year.
New PIP from 9/7/15 but closed 5/4/16 so half a year, so prev year into two halves.
So, as one off, AA was £80k for that year if member of scheme at 8/7/15. Input relevant to pre alignment year only.
Carry forward
3 years only. Max £40k less any amount used in post alignment year.
AA - the present.
AA tapered for high earners.
2 tests.
First get net income.
Adjusted Net Income Test. Has to be at least £150k to meet test.
Adjusted income is NET Income plus net pay contributions plus employer input value.
Threshold Income Test. At least £110k.
This is net income plus any salary sacrificed for pension contributions less gross amount of any relief at source contributions.
MPAA Triggers
Money Purchase Annual Allowance
Triggers. (Will be £4000)
- Income withdrawal from flexi drawdown.
- Takes UFPLS
- Convert pre April 15 capped drawdown to flexi (and takes income).
- Takes more than permitted in capped.
- Receives lump sum where primary protection exceeds £375k.
- Payment from lifetime annuity
- Pension from MP if less than 12 members.
- From overseas funds as above (received TR).
- Entering flexi drawdown pre 6/4/15.
Triggered if member only takes these. Not dependants.
MPAA there to determine is client has to ‘pay back’ tax relief in form of Annual Allowance charge.
