Originally posted by starstruck
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Reversing pension mitigation follow LC review
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Originally posted by Silverskin View PostThanks Tiger22, starstruck and CanPayButWouldRatherNot.
The main reason I'm asking is that I am still to file my business accounts for the 2018-19 tax year and therefore I have potential to amend the business return and therefore my income from the business for the 2018-19 tax year.
Because of the Loan Charge I had reduced all other income practically down to nil but now the Loan Charge won't hit me, my income is due to be nil and I won't be taking advantage of the nil and low rate income tax bands. Clearly however, given what's being said, whatever income I choose to now take from my business will need to bear in mind that the pension contribution will have to be at the same level.
Almost certainly a stupid question but presumably we're talking about gross amounts here? Following on from the previous example, if I take income at £50k then my gross pension contribution will be £50k, comprised of £40k contribution from me and £10k basic tax relief from the government. Correct?
Thanks in advance again.Comment
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Originally posted by starstruck View PostCorrect on gross/net yes. But how can you amend your income for the 2018/19 year, it is not the accounts that matter, it's the actual payments that happened in the year that matter. The only scope I could see for change would be moving an amount between a director's loan and dividend or vice versa, I don't see how you can retrospectively change your salary.Comment
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On a separate note, you alluded to the timing of the withdrawal in relation to minimising investment losses and maximise any gains. Is it that any losses or gains are carried by the individual? Is there any interest payable on the tax relief received for the period invested?Comment
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Originally posted by Silverskin View PostOn a separate note, you alluded to the timing of the withdrawal in relation to minimising investment losses and maximise any gains. Is it that any losses or gains are carried by the individual? Is there any interest payable on the tax relief received for the period invested?
I’ve not found any reference to gov wanting interest on the tax rebate that was in your pot. other than if pension company doesn’t pay them within 90 days of you completing form. But I agree, it seems odd they will let you invest their money for 6 years!! That could be quite some investment gains. So perhaps I’m missing something here. HL never mentioned interest.Last edited by starstruck; 23 December 2019, 20:36.Comment
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Originally posted by starstruck View PostI mentioned because I purchased global trackers mid last year and they are 10% higher now. I’m locking in that gain before the new law comes in. Hence I’m saying the global markets are high right now. if you’re planning on taking this money back in the summer they might be much higher still but they may also be much less. How much risk do you want to take? You don’t want to lose the tax rebate through investment losses.
I’ve not found any reference to gov wanting interest on the tax rebate that was in your pot. other than if pension company doesn’t pay them within 90 days of you completing form. But I agree, it seems odd they will let you invest their money for 6 years!! That could be quite some investment gains. So perhaps I’m missing something here. HL never mentioned interest.Last edited by Silverskin; 23 December 2019, 21:37.Comment
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Originally posted by starstruck View PostYes you must keep the £50k gross in there, the reason being you are only allowed to unwind based on an over payment and not because you changed your mind (presumably, people would be at it all the time otherwise). So you'd get back a max of £56k (70*0.8) and the rest you'd get at retirement.
It might seem like a bit of a pain, but if you consider your total overall position following the changes, you're in a much better place and you had no way to predict these changes and if they hadn't happened the pension mitigation was a very wise decision.
To expand on the specifics, originally I was expecting to be able to make a £120k gross pension contribution, receiving 45% tax relief. Therefore I made an original net contribution of £96k (with £24k [20%] coming from government) and I was expecting to claim a further 25% tax relief (£30k) on my SATR.
Now that I am no longer facing the Loan Charge my income has now reduced to £50k and as we've previously discussed, the pension contribution I must make is on a par with this income, i.e. £50k gross (£40k net). So by my reckoning, having paid £96k net initially, and now being obliged to contribute £40k net, then I personally need to withdraw £56k (aside of the £14k refund the government would be entitled to).
Is my understanding correct?
CheersComment
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Originally posted by Silverskin View PostSorry just one other clarification, so the £50k would be gross (i.e. include the 20% government tax contribution) and therefore I would need to withdraw funds to the level where the contribution I have personally made is £40k (i.e. 80% of the gross amount). Is this understanding correct?
To expand on the specifics, originally I was expecting to be able to make a £120k gross pension contribution, receiving 45% tax relief. Therefore I made an original net contribution of £96k (with £24k [20%] coming from government) and I was expecting to claim a further 25% tax relief (£30k) on my SATR.
Now that I am no longer facing the Loan Charge my income has now reduced to £50k and as we've previously discussed, the pension contribution I must make is on a par with this income, i.e. £50k gross (£40k net). So by my reckoning, having paid £96k net initially, and now being obliged to contribute £40k net, then I personally need to withdraw £56k (aside of the £14k refund the government would be entitled to).
Is my understanding correct?
CheersComment
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