Contributions And Tax Relief Flashcards
What is the intermediate rate in Scotland
21%
What is a relevant UK individual?
Under 75 and
Has earnings in the UK for the tax year in question
OR
Has been resident in the UK for the tax year in question
OR
Has been a resident in the last 5 years to the year in question and opened a pension in that year.
Who can only pay £3600 (gross) into a pension without tax?
A relevant UK individual who has been relevant under the resident in one of the last 5 years’ rule
Or
A relevant UK individual who has no relevant earnings
What are relevant earnings?
Employed/ self-employed earnings
Income from patents
Earnings from crown employment overseas, subject to UK tax
What are not considered relevant earnings?
Dividends as they are not pensionable
How is tax relief given for net pay occupational/work based schemes?
Tax relief is given immediately.
Net pay comes to your bank account after the pension contributions are taken and the full extent of tax relief.
Taken from your pay packet before you see it.
How is tax relief given for Relief at Source traditional personal pensions and individually owned schemes?
Contribution paid net from takehome pay.
Provider then claims back basic rate tax.
Application for further relief made through self-assement or application to the HMRC.
Higher rate relief made through tax band extension.
F
How are relief by claim retirement annuity contracts/ section 226 contracts taxed?
Contributions paid net from take-home pay.
Relief fully claimed by application to HMRC
How much of a contribution can an employer make to someone’s pension?
No limit
Must be justified as wholly and exclusively for business purposes.
E.g. Paying the directors wife a large pension when others don’t get one.
How are contributions by an employer judged?
Cases judged case by local inspector of taxes. Taken on its own merits but not pre-appoved.
When is tax relief given to an employer?
Generally, in the same tax year as the contribution, however, very large contributions that are out of the normal patern can be spread out.
When would spreading relief be allowed for an employer contributions
Must be more than 210% of the contribution in the last period.
The excess (over 110% of the last contribution period) must be more than £500,000
How is relief spread for employer contributions?
Over £500,000 excess= 2 accounting periods
Over £1m excess= 3 accounting periods
Over £2m excess= 4 accounting periods
What order must salary sacrifice be undertaken to be successful for tax?
Written agreement between employer and employee
Agreement put in place, salary reduced.
Pension contribution is then made
What are the draw backs to salary sacrifice?
Reduced salary
State benefits may be affected
Income protection insurance might be based on post-salary sacrifice
Maximum mortgage lending may be reduced.
How might a director pay themsleves to be tax efficient?
Salary in-between lower and basic threshold.
Pay remainder in dividends.
Any pension contributions made via employer (must still be wholly and exclusively.)
What is the purpose of unauthorised payment rules?
To prevent recycling of pension, comencemant lump sum recycling.
When would a contribution be classed as an unauthorised payment?
More than £7500 PCLS received in one year.
Over 30% increase of payment
Payment more than 30% of the PCLS
The action was a premeditated act of recycling
Includes contributions made on behalf of the member.
How long are increases measured to prevent people trying to get around recycling?
5 years, this is the year of the PCLS and 2 on either side of it.
Cumulative increases in this time are measured
