Contributions and Tax Relief:
What are the 2 main ways tax relief is awarded to pension payments?
- Net pay method
- Relief at source method
Contributions and Tax Relief:
How does the net pay method work?
- Contributions are taken from the employee gross pay before tax is deducted. Therefore full tax relief at prevailing tax bracket
Contributions and Tax Relief:
Explain how relief at source works
- Contributions are paid next of 20% tax
Contributions and Tax Relief:
How are personal and stakeholder pensions taxed?
- Relief at source method, i.e. next of 20% tax and additional claimed through self assessment
Contributions and Tax Relief:
How are contributions to RACs (retirement annuity contracts) taxed?
- Prior to 2006, contributions were made gross and the individual claimed all their tax via self-assessment. This will be the same unless changed.
Contributions and Tax Relief:
How much personal allowance is lost for every £2 over £100,000
- £1 for every £2 is lost. So if someones salary is £115,000 they would lose £7500 personal allowance.
Contributions and Tax Relief:
How do you calculate the % tax relief when someone makes a pension contribution to avoid losing their personal allowance?
- Add up all their tax relief (cash) and divide it by the pension contribution made
Contributions and Tax Relief:
How much child benefit support do you lose for every £100 over £50,000?
- There is a 1% charge for every £100 over £50,000. So £5000 would create a 50% charge (or loss)
Contributions and Tax Relief:
How do you calculate the % tax relief when someone makes a pension contribution to avoid loss of child benefit support?
- Add up all their tax relief (cash) and divide it by the pension contribution made
Contributions and Tax Relief:
How do you calculate the total increase of pension contribution when a salary sacrifice is taken?
- The total amount of extra contribution, compared to a usual contribution.
- plus*
- NIC savings on the sacrificed salary that were also added of 13.8%
Contributions and Tax Relief:
How does the HMRC decide whether the recycling of a PCLS has been an abuse of the rules?
- Exceeds £7500
- More than 30% of usual contribution and
- More than 30% of the whole PSLC
- The recycling was pre-planned
Contributions and Tax Relief:
When do employer contributions need to be spread over more than 1 accounting period?
- When it is 210% more than the previous contribution
- When the amount above 110% is more than £500k
Annual Allowance:
What is the process for calculating the threshold income?
All income
(Minus)
Gross pension contributions by the member (not employer contributions unless paid via net pay method)
(Plus)
Any employment income give up via salary exchange
(Minus)
Any lump sum death benefits taxed via PAYE
threshold is £110,000
Annual Allowance:
What is the process for calculating the adjusted income?
All net income
(Plus)
All employer pension contributions and employee contributions paid via net pay method
(Minus)
Any lump sum death benefits taxed via PAYE
threshold is £150,000
Lifetime Allowance:
What are the LTA limits and dates?
- £1.5m - 2006/07
- £1.6m - 2007/08
- £1.65m - 2008/09
- £1.75m - 2009/10
- £1.8m - 2010/11 - 2011/12
- £1.5m - 2012/13 - 2013/14
- £1.25m - 2014/15 - 2015/16
- £1m - 2016/17 - 2017/18
- £1.03m - 2018/19
Lifetime Allowance:
When do you need to calculate the BCE by 25 x 80%?
- For valuations of pre-April 2006 drawdown pension when a post-2006 BCE occurs
- The only time it is no x 80% is when a drawdown to flexi-access drawdown was complete before 27th March 2014
BCEs
What is the BCE 5A?
- Test at age 75 for drawdown pensions
BCEs
What is the BCE 5B?
- Test at age 75 for uncrystallised money purchase funds
Lifetime Allowance:
How do you calculate the remaining LTA?
Value of benefits on BCE date x 100%
LTA at that date
Transitional Relief: Primary Protection
What is the primary protection calculation?
(Value of individuals rights on 5th April 2006 − £1.5m)
£1.5m
£1.8m + (£1.8m x %) =
must have had benefits of more than £1.5m to apply
Transitional Relief: Enhanced Protection
What is enhanced protection?
- For anyone with benefits before pre-A day that thought they may breach the LTA.
- Essentially there is no LTA and they will never be subject to an LTA charge
- However, no further contributions can be made or the protection will be lost
Transitional Relief: Fixed Protection
How does fixed protection 2012, 2014 and 2016 work?
- Fixed Protection 2012: Protected maximum of £1.8m and 25%
- Fixed Protection 2014: Protected maximum of £1.5m and 25%
- Fixed Protection 2016: Protected maximum of £1.25m and 25% (no deadline for applicants)
Transitional Relief: Individual Protection
What is the calculation for individual protection 2014 and 2016?
(Value of benefits as at 5th April 2014/2016) x
£1.5m or £1.25m
LTA at time of BCE
must have benefits in excess of £1.25m or £1m on the dates
Transitional Relief: Pension Debits
What is the calculation when a pension credit affects someones primary protection?
Benefits on 5th April 2006 - Pension debt
New benefits - £1.5m x 100%
£1.5m
if the reduced value is less than £1.5m this is the only way primary protection can be lost
