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salary sacrifice pension

annual limits on salary sacrifice pension

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An employee a few times a year sacrifices their bonus into their workplace penison. How much per year can he sacrifice this way? 

Taking into account the annual allowance limit for the current tax year is £40,000 and that it includes all the contributions, tax relief and employer contributions across all their pension arrangements, is it best to ask them to get an advice from a professional pension advisor?

Also if they go over this limit, this will result in a tax charge, known as the annual allowance charge. How is this charged please?

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By Software Seeker
19th Jan 2021 22:41

In answer to your final question, in a simple, straightforward salary-sacrifice case, assuming you're looking at 2019/20 (old rates)...

Step 1: Add salary sacrifice to the gross salary/benefits, then add all other taxable income. You've then got the threshold income. If this is more than £110K, go to step 2.

Step 2: Now add the employer's contributions. You've then got the adjusted income. If this is more than £150K, go to the very useful HMRC online calculator...

https://www.tax.service.gov.uk/pension-annual-allowance-calculator

You might have to repeat this exercise for earlier years if the maximum has been exceeded, in order to work out any unused limits to carry forward.

If there is an excess input position, then there will be a tax charge at the investor's top rate of tax - which by definition will most probably be 45%. In some circumstances a request can be made to the pension provider for the tax to be paid out of the pension fund (but there are various rules and time limits to adhere to to request this).

Hope this very general snapshot helps.

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bkphoto
By BeataKl
20th Jan 2021 07:31

Thank you

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