Comments Off on NHS Pension scheme to permit voluntary scheme pay
Members of pension schemes are permitted to fund into the pension the lower of 100% of their earnings or £40,000. However high earners (over £110,000) may have the £40,000 limit reduced, down to a minimum of £10,000. This limit is known as the Annual Allowance. When you exceed the annual allowance and have carried forward any unused annual allowance from previous years, you face an annual allowance tax charge. The tax charge can be paid by the member, or in some circumstances, the pension fund itself. When the pension pays the tax charge, it’s known as Scheme Pays.
The NHS pension scheme has made a change to the scheme rules to permit voluntary scheme pays.
A pension scheme must offer mandatory scheme pays as a mechanism to pay the annual allowance charge if the member has contributed in excess of the standard annual allowance (£40,000) and their annual allowance liability is more than £2,000. There is no minimum criteria for voluntary scheme pays to be used but it is up to the pension scheme whether they offer it or not. Which schemes offer voluntary scheme pays has been brought to the fore because of the impact of the tapered annual allowance and the need for the individual to have to meet the annual allowance charge personally, in line with the self-assessment deadlines.
For the NHS schemes (1995/2008 and 2015) voluntary scheme pays is available for the tax years 2015/16 and 2016/17 if the pension input amount in one or both schemes is under the standard annual allowance and the total pension input amount across both schemes is more than the standard annual allowance.
For tax year 2017/2018 onwards, voluntary scheme pays is available if either:
the pension input amount in either the 1995/2008 or 2015 NHS Pension Scheme is under the standard annual allowance but over the tapered or alternative annual allowance or
the individual is a member of both schemes and the total pension input amount, from both scheme when added together, is more than the tapered, alternative or standard annual allowance
From tax year 2017/2018 it’s no longer a condition of NHS pension scheme pays that you have an annual allowance charge of more than £2,000, across all your pension schemes.
Members of the NHS pension scheme will need to complete a Scheme Pays Election Notice (SPE2) and return within HMRC’s deadline of 31 July, in the year following the tax year of the annual allowance charge.
The NHS pensions website is being updated with new forms and guidance material, alternatively contact us for more details.
Comments Off on How much can I pay into my pension?
The maximum you can personally invest into a pension and receive Tax Relief on, is 100% of your salary subject to an Annual Allowance limit which is currently £40,000. Please note dividends are not classed as salary. If, as an example, you have a salary of £8,000 and dividends of £45,000 the maximum you can personally Invest is £8,000. However, contributions that are made by your company into a pension for you are NOT restricted by your salary; your company can Invest the full Annual Allowance maximum of £40,000 and potentially more than this using Carry Forward (more on this later). Please note, you will need to satisfy what is called a ‘Wholly & Exclusively’ requirement, but as a Shareholding Director this should not be a problem.
From a tax perspective, personal contributions into a pension (ignoring the contribution limits) would be made from your after tax income. The contribution would then qualify for Basic Rate Tax Relief at source and Higher Rate Tax Relief, if applicable, could be claimed via your Self-Assessment Tax Form. The deadline for a personal investment tax-wise is the end of the tax year.
Company contributions into a pension will be a tax deductible business expense and so reduce the amount of Corporation Tax your company pays. Such a contribution is also NOT subject to National Insurance. The deadline for a company investment tax-wise is your Company’s Year End which is likely to be different to the tax year. As mentioned earlier, your company can possibly invest more than £40,000 as you can Carry Forward any unused Annual Allowances from the three previous tax years. To be eligible for Carry Forward you must have been a member of a Pension Scheme during the Carry Forward years, although you do not actually need to have been making contributions. Before making any investment I would suggest that you get specific advice.
Please contact Lexington on [email protected] or 01793 771093 to discuss your Financial Planning and Wealth Management plans.
Here are our first thoughts on the budget, a few key points which may affect you, our full summary will follow shortly;
The key points from today’s statement were:
Pensions – no news is good news.
LISA – a new savings option
Fewer higher rate taxpayers from 2017
CGT falls – good news for investors but not landlords
Budget 2016 – what this means for you
It’s business as usual for pension saving as the Chancellor confirmed there will be no imminent changes to pension tax relief. And the introduction of the new Lifetime Individual Savings Account (LISA) saving vehicle from April 2017 adds another attractive complementary option to the saving landscape.
Taken together with cuts in Capital Gains Tax (CGT) rates, further boosts in income tax thresholds and some welcomed tidying-up of pension anomalies, it’s been a good Budget for savers.
Pensions – no news is good news
In the run-up to tax year end, with no changes to pension tax relief and the new LISA saving vehicle, this allows us to focus on:
Pension saving: Using the higher 2015/16 annual allowance, and carry forward, to make the most of higher rates of tax relief.
Lifetime allowance: Planning in earnest for the imminent lifetime allowance cut (including final funding for those using fixed protection 2016 to lock into a £1.25M allowance).
Other pension news
Salary sacrifice is here to stay: In more good news for employers and employees, the Government has confirmed that salary sacrifice will continue to be a tax and NI efficient option to fund a pension (as well as other mainstream employee benefits, such as childcare or health-related provision). Its use for other employee benefits may, however, be cut back.
Workplace pension advice allowance going up: To encourage employers to boost employee access to professional advice on their pensions, the tax and NI free allowance for employer-arranged advice will increase from £150 to £500 per employee from April 2017.
Pension dashboard coming soon: To help pension planning, a new digital pension dashboard, giving a single view of an individual’s total pension savings, will be launched by 2019.
Under 23 drawdown anomaly fixed: The current rule that requires minor dependents’ drawdown to stop at age 23 will be scrapped, giving these dependents the same flexibility as other minor beneficiaries to continue drawdown after 23.
A fairer deal for the seriously ill: Pension tax rules will be relaxed so that serious ill-health lump sums can be paid even where funds have already been accessed under the scheme. And, for payments after age 75, they’ll be taxed as income rather than at a flat rate of 45%.
LISA – a new savings option
The Chancellor unveiled plans to introduce a new Lifetime ISA (LISA) from April 2017. But this is a complimentary savings scheme for younger savers, not a replacement for traditional pension saving. Higher rate tax payers will continue to enjoy tax relief at 40% on pension savings of up to £40,000 a year, keeping pensions as their number one long term savings plan. Indeed, the under 40’s will be able to use both and add up to £45,000 pa to their retirement funds.
The Government aims to encourage long term saving with the inclusion of a ‘buy four get one free’ bonus, but with the ability for first time buyers to use savings to get a foothold on the property ladder.
How it works on the way in The new LISA will only be available to the under 40s and will include a 25% Government top up at the end of each tax year. It won’t be possible to pay as much into the LISA as you can into your pension. Contributions will be limited to £4,000 each year which will be topped up to £5,000. And savers will stop receiving their top up once they reach age 50.
LISA contributions will count towards the total ISA savings limit which will increase to £20,000 in 2017/18.
How it works on the way out Funds can be accessed tax free after the age of 60. But to help first time buyers, funds may be withdrawn tax free to cover the cost of a deposit on their first home. And anyone already saving in a help to buy ISA will be able to transfer their existing savings to the new LISA.
Accessing savings before age 60 for other reasons will be allowed but the Government Bonus, and the growth on it, will be lost. There will also be a 5% tax charge applied on the amount withdrawn.
As with other ISA schemes, the LISA will form part of the estate for IHT.
Good news for investors as Capital Gains Tax (CGT) falls in 2016/17 – but not for landlords…
Investors who own mutual funds or shares can benefit from a CGT cut from 6 April 2016. The new rates are:
10% where an individual is not a higher rate tax payer
20% where the investor is a higher rate taxpayer, or the gain takes them into the higher rate band.
Trustees and legal personal representatives also win, as their tax rate on trust and estate gains falls to 20%.
However, landlords or second property owners will continue to pay 18% or 28% on any gains when they come to sell.
Income tax
In April 2017, the Personal Allowance will rise from £11,000 to £11,500 and the higher rate threshold will increase from £43,000 to £45,000.
These two changes will see the take home pay of higher rate taxpayers increase by £500 each year, while for basic rate taxpayers the increase will be £100 each year.
Together with the new dividend and savings allowances available from April 2016, advice will be key to ensuring that clients have their savings in the right place to produce a tax efficient income when they need it.
Class 2 National Insurance From April 2018, self-employed individuals will no longer have to pay Class 2 NICs, currently £2.80 per week.
They will still have to pay Class 4 NICs, which will be reformed to allow them to build up an entitlement to State Pension and other contributory benefits.
Corporation Tax As an encouragement to UK business, the Corporation Tax rate will be further cut to 17% from 2020. The current rate is 20%.
Here’s a reminder of what we already know is coming in 2016/17:
Lifetime Allowance (LTA) cut to £1M
The pension lifetime allowance is to be cut from £1.25M to £1M with new protection options for those expecting to be caught.
Annual Allowance (AA) cut for higher earners
The standard £40k AA will be reduced by £1 for every £2 of ‘income’ you may have over £150k in a tax year, until their allowance drops to £10k.
£5k Dividend Allowance
A new allowance will see the first £5k of dividends paid tax free. The changes also affect new rates of tax for dividends in excess of the allowance and an end to the notional 10% tax credit.
Personal Savings Allowance
Also from April 2016 the first £1k of interest will be tax free (£500 for higher rate taxpayers). Interest will also be paid gross so that non-taxpayers no longer have to reclaim tax deducted at source. Additional rate tax payers will not benefit from this new allowance.
