I have no faith that in 3 years, let alone 18 years, that the lifetime allowance won't reappear. I thought it may double but feels they are just opening a door for all their friends to cash in massive pensions with no excess tax. I see Jeremy is only a couple of years away from being able to do that, what a coincidence.
Hi James, can you share your thoughts about the awful performance of the markets that has effectively wiped out my own pension contributions for the last 2 years at the very least despite the governments 25% additions? I've seen the last 2 years gross contributions completely lost despite continually pumping in as much money as I can afford including offsetting higher rate tax considerations. Many thanks.
Is one still limited to contributing pension contributions up to their gross salary? Let's say someone earns £35k but the pension annual allowance in 2023/24 is £60k, can that person only contribute £35k?
@@caracal9458 Yes LTA is definitely coming back. Labour have vowed it will return. I'll just be maxing out my £60k for now and worry later. It's a nice problem to have and there are ways around it.
James, I'm late to the party but I think you need to be wary of putting £ figures on the increase in free hours given that nurseries up and down the country already put in loads of stipulations and additional costs for 3-4 year olds which make it less "free" and more "20% discount" which is going to impact new 1-2 childcare. That's before mentioning that some nurseries might not be able to afford to shoulder this (and thus close) nor does the Govt set out any strategy for increasing the availability of nursery places, considering in many places around the country nurseries operate on a long waiting list. Appreciate this delves a little bit into politics but thought it was important for anyone who is planning financial decisions around thinking they'll be thousands of pounds better off because of this. The vast majority of parents will not be, and some will end up *worse* off.
I am not getting excited about changes to pensions, labour is already saying they will make changes if they to power. How are people meant to plan for retirement if rules change every couple of years?
The LTA change itself affects few people. But the Tories have goaded labour into that initial reaction ( which was predictable) and this will remind a much larger base of people that Labour could change a lot more than just the LTA. That uncertainty could push some voters on the fence away from Labour. 🤷🏼♂️
I understand your concern, but as James says at end of this video...over-concern could lead to paralysis. For me, I'll be taking full use of new annual allowance until arrested :-). @James...you say only a few folks are affected by the lifetime limit change, but what are stats on this...I suspect it's more than a few but understand it's likely to be a lowish percent of total distribution of pension pot values?
Thank James, Great recap of the major points of the budget which we can take advantage of. Still disappointed that the government seems to be prioritising making the wealthy wealtheir
Hi James, I am just a bit confused about the difference between the Pension LTA still being in place in 2023/24 but anyone breaching the allowance not facing any tax charges and the LTA being abolished in 2024/25. Does this mean that any withdrawals in 2023/24 will still count towards your % of your tax free LTA allowance. Eg a withdrawal of £100,000 in 2023/24 would account for almost 10% of your LTA allowance and therefore this could be relevant should the LTA be reinstated in the future. Whereas, if however, £100,000 is withdrawn in 2024/25 it won't count against any possible LTA because it has been totally abolished. If this is the case could timing of any significant withdrawals could be really important in the event of a future government reversing the abolition of the LTA. Sorry if this is not at all clear!!!!
This has not been made clear yet. But the the use of your tax free allowance will still be tracked, so even without the LTA Labour could use that as another tracking point to install future limits. The other argument is that, if you are over the LTA, next year may be the best year to fully crystallise your pension as you can be certain of no LTA charge in that year. Although you need to balance that against other factors like IHT concerns.
@@JamesShack thank you so much for the clarification, that's really helpful. It hadn't occurred to me that a future government could still track crystallized sums in years where the LTA has been abolished and that they could still count if the LTA or similar is reinstated in the future
James, can you please do a video explaining how PAYE, Income from Dividends and income from Capital Gains all play together? An example is let's say i earn £99K so £1K off the point that personal allowance is reduced I sell £10K of stock minus allowance of £6K so i have to pay tax on £4K at 20% and i get £5K from dividends. So minus the Div allowance of £1K leaves £4K taxable (which is taxed at 33.75%) - some examples just pile it all ontop as if its treated the same so 99+4+4 107K of taxable income but it can't be that simple or how else do they work out the different rates for different classes.
Hi James I’ve watched quite a bit of your content and I think this is of the best ones I’ve seen. The way you take a pretty complex subject and make it so simple is brilliant! It makes me realise I have a long way to go with my own content 🤔
Thanks James. Given there looks to be a small window between the LTA being abolished in 2024 and Labour likely to reinstate it in 2025, would you think it worth considering waiting to crystallise the whole of a pension fund that has breached the LTA limit during that window? What relevance will the percentage of LTA used up before 2024 have in the event of abolition an/or reinstatement?
It’s impossible it say what any future Labour government will do if they were to get it. But from next year someone over the LTA could crystallise in full with no charge. In the future, if an LTA is reintroduced that may not be possible. But again we have no idea what that might look like.
Hi James. Great video. I have a potentially unrelated question. Are people who earn less than the annual allowance able to use pension carry forward? For example someone who wasn't earning anything (and can therefor only contribute £3,600 gross) can they carry forward 3 previous years, making a total of 4 x £3,600?
I think it’s worth mentioning how much of a mess the HMRC make of the HICBC. I’ve personally been told that even though I’m making extra contributions to bring me under £50k. But my standard pension contributions don’t count apparently.
Thank you for the content. I feel (and hope) that I understand enough to ask a question. Due to a great DB pension which I changed to DC style and a bit of performance I have gone above the LTA. I am a pensioner. I have taken the 25% tax free. The bit above the limit I left hoping that something might change. Feels like this is it and instead of taking income from my crystallisation pot I should access my pre retirement pot and start taking that bit above the LTA as income? I won’t expect advice but am I making any sense? Thank you again and to anyone else reading this far a bit of a poor health outlook caused me to get out of my DB 👍
Hi James, I recently turned 55 and started taking my DB pension and continue to work and pay into my work pension. You mentioned the amount you can contribute to a pension, once taking a pension, has gone up to 10k but am I right on thinking this in only for DC schemes. As my pension is DB I can pay in as much as I want?
A basic pension video be great very confusing, so currently if I earn over 50k I pay the higher tax band on that ? Does my tax code change for the next year or just pay more on what I earn over that so say the last 2 months of the year pay when I hot that ? If so how would someone go about paying a one off payment into pension to get back under that 50k ? Thanks james
The simplest was to do this is via a SIPP from any of the big investment platforms. You can then make contributions into that from your bank account. If you earned £55,000 you would pay £4,000 into the SIPPA and HMRC would then add 20% tax relief (£1,000) to the pension. You would then claim back the additional 40% tax via a tax return.
I did not know that pension contributions could be used against childcare benefit eligibility! Not sure if this will apply to my family but going to look into it! Thanks for another great video
Hi James, great video as always. I have a question about transferring money from an ISA into a Pension. You mention a couple of scenarios ("just over" £50k and "just over" £100k) where making pension contributions can be particularly advantageous. But someone on (say) £70k might not have (upto) £20k to hand and someone on £130k might not have £30k to hand. But they might have those sums in their ISAs. I (think) I understand the relative merits of the two vehicles but what I don't have a feel for is, "What is a good ratio for pension pot to ISA" ? In a previous video you alluded to the benefits of drawing down investments (ISAs) and Property before touching the pension pot as a way of shielding from Inheritance Tax. So if someone has say a £300k pension or a £600k pension or a £900k pension, what would be a good size for the ISA ? A very large ISA means you're probably not taking (haven't taken) full advantage of your pension. A very small ISA means that in the even that you suddenly need a large sum of cash, you would have to draw on your pension (assuming you're over 55) or secure funds from elsewhere (loans ?). Is there a good "Rule of Thumb" or are there two many variables and it genuinely is going to be different for everyone ?
There’s not. Pensions are more tax efficient then ISAs. But an ISA is more flexible, which is good for those earlier on in life. As you get older you can always use your ISA to contribute to your pension so you can keep flexible until you no longer need that flexibility. Of course there is always the risk that rules may change, so it’s often useful to keep a balance of both until closer to retirement when you can try to max out on tax efficiency.
“Transferring money from an isa into a pension”? Did you mean just pay more salary into pension, and spend the ISA as income to compensate? Cus just transferring ISA into pensions doesn’t make sense - as you have already paid your income tax on that money.
@@JamesShack is it really correct to say pensions are more tax efficient? Yes you get tax relief on the way in but you also pay it on the way out. I’ve always viewed my ISA as the gold standard of investment vehicle, being shielded from tax forever even upon drawdown.
The pension contributions you mentioned that bring your taxable income back below the £50000 mark so as to not effect child tax benifit. Can this be done with a public sector defined benifit pension too if they allow extra purchases as part of the scheme?
Hi James, great video; thank you! Could I ask a really random question please, totally unrelated!! Where did you find your dining table/bench? Looking for something similar!! Thanks so much :)
James! I've put 16k into my SS ISA. I can't decide whether to open a Lifetime SS ISA for the 4k or keep all 20k together. I don't know what to do and times running out! 35 saving for retirement. Thanks!
If you don’t need that £4K until you turn 60, then the LISA could be a useful tool to diversify. Although if you are a higher rate tax payer, a pension would likely be more tax efficient.
Great video as always James, yours are the clearest and most helpful I’ve found anywhere… Do you think it is therefore worth considering losing the 2016 LTA protection by making pension contributions again now that the LTA has been abolished ? And, secondary question, am I right in thinking the £4K now £10k contribution limit only applies if a taxable income has ever been taken from a draw down pension, not if all that has been taken is the 25% tax free cash ?
We’re still just trying to get our heads around it to be honest. It sometimes takes a few weeks for the fine print to be know because there are so many nuances. But I think those with protection can now join new schemes and keep contributing: techzone.abrdn.com/anon/public/pensions/removal-LTA-what-we-know?opendocument&ADV-TEC-Not-Eligible-17032023&Eloqua&CSLAR000000225063 That is right, MPAA applies when you flexibly access the taxable part.
Does inflation actually reduce debt? It might be smaller in relation to the cost of ‘things’ but unless your wages have matched inflation then the debt burden is unchanged. If your wages haven’t matched inflation then the debt becomes harder to service, surely?
Hi James, Not specifically about this video, but still it bugs me... in the last 12 months I've paid more into my pension than ever before, but still the overall pot of money has barely gone up at all. This must be due to the stock market and the fund performance being negative overall. But I guess I've bought more 'units', right? -At a cheaper price, so can I expect this period of no-growth to pay-off better in the long-run or have I truly lost a year? Forgive the dumb question.
Not a dumb question Nigel. Likey, as you rightly say, you will have bought more units at what would normally be a cheaper price. In the long run as markets recover (hopefully) you will benefit. Good luck 👍
Yes, you'll have purchased more units. I'm in Vanguard Life Strategy 100% (i.e:, 100% stocks and 0% bonds). That's gone up 0.81% in the last year to date which is negligible. I always continue to put money in as I'm purchasing more units. It's even cheaper now than it was before so the more I put in now, the more units I get for my £££.
Yes that’s normal, some years markets fall and it won’t look like your contributions are doing much. But your buying in more and more for when the market eventually turns back the other way.
Hi James…. In my pension i can either add AVC’s additional voluntary contributions, or I can add extra contributions to my pension. Why are there these 2 options? Why would anyone choose to add extra to your pension when there is the AVC, with all the benefits that come with it? Has it got something to do with a maximum limit on AVC’s?
And when is that exactly because goal posts change every few years? Chance ISAs are necesarry to mitigate the risk comming from this pension ping pong game this (and likely future) government is playing.
Personally, I’m prioritising ISAs over a pension right now but still doing both) because I’m 33 and about to start a family so I have no idea what extra cash I might need in the future. I can also use those ISA funds to make large tactical pension contribution when it’s most efficient, for claiming back allowances or childcare. So there certainly is still reasons to run both. Pist’s comment is also not invalid.
If retired, and I haven't yet accessed my pension, my assumption is that I can now pay up to 10,000 into my pension, whereas the previous limit was 4,000? thoughts James please
So am I right in saying for somebody who earns say £35k per year, this has not helped them one bit, as they can still only put in upto 100% of their salary (£35k). ie. they couldn't transfer any additional cash from other savings into their SIPP over and above what they earn. So this really has only helped people that are already very well off / earn well above the national average salary.
Regarding the so-called 30 hours per week free child care, it should be made clear that this is based on a notional 38 week school year. This means that if a child is in a nursery operating year-round, the actual number of hours paid for by HMG is 22, not 30. (The 15 hours per week are in effect 11 hours). I am not surprised that the Government is keeping quiet about this, but commentators (even the sainted Martin Lewis) seem to be missing this point!
Hi James, my Dad is 91 and has a pension of £50,000 + per year. Would it be a good idea for him to now put £10,000 ( affordable from pension income ) a year into a SIPP to shelter some of his money from inheritance tax ?
Should have re-indexlinked teh personal tax free allowance. The pension changes bring no current relief for anyone and as you can't benefit from the increase in annual contributions from 40 to 60k unless you earn that much. The LTA should have been index linked again so people on normal salaries don't run into that later, no need to scrap it. Anyone on higher salaries who is paying tax charges on annual pension contributions should be bright enough to pay attention and take measures to mitgate that. But all the tax charge does is put the excess pension contribution back on the same footing as other savings made from taxed income.
Unfortunately, this will be reversed by the Labour party when they take office in a year or so. Unless you are a doctor or consultant it will be a mute point. How can we plan on this basis?
Hi James. Do these new changes take effect from the new tax year only? So you're saying I can pay £60,000 into my pension when this kicks in and get back my child care allowance?
Really interesting. Could you confirm if SIPP contributions count when you refer to 'Pension conrtibutions'? Or are you referring to workplace pensions. I ask as a freelancer with a kid in a nursery and I'm likely to earn over 100k in a tax year, I invest in a SIPP.
James, is there any clarification on the tax free cash situation. It seems straightforward; everyone says it's a lifetime amount of £268275. But is it? What about people who used up their LTA when it was only £1m? They got £250000 tax free at that point. Several years later, they now have further uncrystallised pension funds available (in excess of £73100). Clearly, they'll take the opportunity to crystallise without an LTA charge, but can they also get their remaining £18275 tax free cash? Or are they still going to be said to have had 100% of their lifetime cash, even though it wasn't, at that time, £268275?
If you have used up 100% of your LTA you cannot get additional tax free cash. The works in the same way as it did before, even of the LTA increased, if you had used up your LTA you don’t get a higher one. Unless you have used up say 80%, then you would get 20% of the new higher allowance.
@@JamesShack Thanks very much, James; not the answer I wanted but, I have to admit, it is the one I expected! But, at least I now get an opportunity to avoid an LTA charge and can access funds that were, for all practical purposes, locked away until age 75.
Yes I've been increasing my pension contributions to get below 100k so that I can get the 30hrs. It's made a massive difference. Not getting near the 60k a year though! However, it all helps.
James, I learnt a lot as always, thank you. I believe I read recently that the best way to ensure your children inherit your pension pot, assuming I croak first, followed by my wife, is to leave 98% to my wife and 1% to each of my two children. If my understanding is correct, can you explain please how that works as it doesn’t make a lot of sense to me. I.e. what is the point of getting 1%? Does it have advantages once my wife dies?
I understand that the PCLS is frozen at 25% of the current LTA. What is the situation for UFPLS? If you were lucky enough to have a £2M pot, could you still take unlimited withdrawals where 25% of each one is tax free?
Re the MPAA cap on contributions, I'm currently on a lower limit of £3600 because I have no earned income. You are currently limited to the higher of £3.6k or your earned income. So far, I haven't found any reference to this in the budget commentaries so assume that its unchanged. Can anyone confirm that this is unchanged.
James what is the minimum salary you need to earn if you want to salary sacrifice the full £60k (assuming its actually £48k given the 20% government contribution)?
Unless you are utilising carry back/forward from previous years, then the most you can contribute is 100% of your earnings. So to contribute 60K to a pension, would mean you would need to earn £60K minimum.
@@Mr35000000 You can only get tax relief on the earnings in the tax year the contribution is made, so if you could pay £70,000 including carry forward, but you only earn £50,000 you could pay £70,000 but you would only get tax relief on the first £50,000. Regarding salary sacrifice, you still must be paid the minimum/living wage by your employer so you cannot sacrifice below that amount in each pay period. The balance however can be paid under Relief at Source.
@@iain8567 I have a SIPP funded by my Limited Company. Could I not pay £100K into my SIPP from my limited company, utilising previous years allowances. Then this would create a £100K loss to the Limited Company, giving me tax relief on the full amount?
@@Mr35000000 Employer contributions are subject to different tax rules to personal contributions. Whether Corporation Tax relief is granted depends upon whether the local inspector of taxes considers that the contribution is wholly and exclusively for the purposes of trade. Your accountant will be able to provide advice on that issue. Employer contributions still need to be within annual allowance limits.
@@JamesShack Hi James, Thank you for putting this video together so quickly. It's really helpful. I have a quick question, my husband and I are both retired. My husband receives state pension, Canadian Pension Plan and a bit from his uncrystallised SIPPS to make up his personal allowance. From my SIPPS, I receive my personal allowance and 25% from drawdown. I am not of state pension age but I have retired early. We both also receive income from a loan trust bond and gain good interest on our ISA'S by investing in a smoothing product. Presently, each of us invests £2880 + the tax relief into our pensions so £3,600 per year. As we've both triggered the money purchase annual allowance, from 6th April 2023 would we be able to increase our pension contributions from income from other sources such as our bond and ISA'S to £10,000 per year?
Hi James, if i get close to the 50k salary and lets say i want to keep my child benefit, would the extra pension contributions be made through salary sacrifice or i could just increase my contribution % from 4% lets say to 6% to keep me lower than 50k. Thank you for the great content
You can do it by increasing your % contribution into your work place pension. This is simple to work out if you have a salary sacrifice pension. Alternatively you can contribute directly to a SIPP. With this, say your salary is £60k you would need to make a £8k payment into a SIPP, which would then get 20% tax relief (£2) leaving you with a £10k pension contribution. You would need to claim the additional 20% higher rate tax back via a self asset tax return. Much easier to just do it via salary sacrifice, and you also save on national insurance.
I've just increased my pension contributions to 20% for the last 2 months. I'm just under the 50k. I've been stung previously with the child benefit so I just put more in my pension.
@@JamesShack This is disgusting. Rich getting richer using exploits they themselves create to enrich themselves while poor getting poorer. Hope more working class start striking and making the rich do everything themselves
Hi James, I am a high earner and I can afford to contribute the £60k a year. I am 27 and a long way away from retirement, I’ll likely be tapered in my career and was thinking of contributing now. However I am concerned of Labour changing the policy. What should I do ? Having done the maths, my pension is well on track to exceed the former lifetime allowance
Hi Phil, I can’t give personal recommendations but it’s important to post the rules at they are. If they do remove it in the future they often put protections in place for those at or near the new limits. And you could just stop contributing in the future. We will be advising all clients to use the allowances if it’s suitable. Ofc if you’re young, it’s important to have enough outside of pensions incase you need it . I’m 33 and don’t pay much into my pension because I think I’ll need the cash for stating a family/ new home. And I can stick what I don’t end up needing into a pension later.
27 and a (very) high earner. Interesting, what job do you do? FX trader? Just interested. In your position you could retire ten years before state pension age, quite easily.
Hi James, excellent content as always. I"m 51 and stopped putting money into my pension back in 2014 and instead maxed out my ISA and partner ISA/ pension allowances. This was to protect my, at that point, 1.5m protected penions allowance. Now that there is no pension cap, should i now move as much of my ISA funds as possible into a pension wrapper? (they are both in Vanguard life strategy funds). Thanks for your help!
Hi bud, just thought i would comment on this, since you have already paid tax on your isa holdings(as it was paid out of your salary after paying tax), if you were to transfer it in to your pension, assuming you stayed within the max contribution rules, the government would uplift whatever you paid in by 25%, and if you are a high(er) tax rate payer, you could claim additional monies back. So its a win win :)
Hi John, I can’t give you personally advice but the pension wrapper is likely to be more tax efficient than the ISA and it’s also outside of your estate for IHT purposes.
Hi James, my wife retired at the age of 55 and has triggered the MPAA with her SIPP due to a 25% withdrawal but she is not withdrawing a regular pension. She has an amount of savings outside of her ISA (through inheritance) will she now be able to put £8,000 per year (as a basic rate taxpayer) into her SIPP although she is not in receipt of any taxable income. I am in full time employment and am utilising the unused marriage tax allowance.
Are you certain that she has triggered the MPAA? If you check other videos that James has done, you can take a lump sum so long as you put 3x as much into a drawdown pool at the same and don't touch that by starting to withdraw from that sub-pot of money.
@@AlanPeery Hi Alan, yes she has notification that her MPAA has been triggered (it was a fairly small SIPP) with the previous intention of contributing £3200 per year from a recent inheritance. And then withdrawing from the SIPP when she is in receipt of a DB pension at age 60, keeping the total taxable income below the 20% threshold. If she can now contribute £8000 per year, this would require a whole new spreadsheet to understand the optimal fulcrum point.
What I did not say is that she is maxing out her ISA allowance each year from the inheritance, its how best to get her inheritance legally within a tax wrapper.
I’m a childminder and slowly the government has taken over our business starting 3-4 yr of age free for £6ph then 2yr old and now from 9 months where we cannot charge them top up to get in line with low income bracket. Many nurseries also will close as this is not sustainable. A big disaster is coming. Regarding pensions this is all for the rich to put their money secured before the fall of the markets. Hey, we can always sing the hockey docky!
Hi James, I am drawing down on my Sipp at the moment as I am retired, I understand I can only add £2880 per year since taking drawdown is there any change to this £2880 limit?
So if I have 50000 in stocks and shares(outside ISA) it would be beneficial to put all into a pension and claim tax back. I am a higher rate tax payer on c130k payer annum or better to pay 30k of salary into pension to bring salary to 100k. Cheers
Let's be honest - the LTA removal is designed to be a vote winner but will never actually affect the vast majority of people. Firstly most people get nowhere near the LTA. Secondly, the tories know labour will slam an LTA back in place the second they get into power. It's a matter of when, not if. I would have been far more impressed with a modest increase in the LTA, and a resolution to resolve silly tax humps where your incremental rate becomes punitive, removing the incentive to progress.
Another reason I dont think its a vote winner its that most people who wish to contribute over £40K per annum and are likely to gave a pension pot of over a million pounds, probably already vote Tory. Cant see this plan winning over many of the red wall voters.
Really appreciate James’ content. But it does grate when I hear ‘free child care’. We are taxed, at threat of going to jail, to pay for it all. Whether we want to send our children to a complete stranger earning minimum wage with no emotional or physical investment in them to raise or not, we still have to subsidise it. Everyone thinks the state is doing them a favour when they make it easier for mothers to go in to the labour market to be wage slaves and end up drowning in consumer debt and almost nobody can see how the Gov is actually screwing you over.
PS - I don’t know much about them but is it worth mentioning making pension contributions for each of your children as well to help reduce your exposure? Is it £3k or so a year per child? Then obviously a tax rebate added to that.
over 905 of the UK of the uk is not effected by LTA the majority never put 40k into a pension and 60k is a dream for most but saying that i welcome the changes I ask myself what will the next govt do I dont trust politicans and i think there could be a trap going to catch investors I will use pensions and i will never breach the 1m so as far as i can see i will press on and invest up to the age of 75 another 10 years
Hi James, thanks for your video very informative. One question I have is say you earn £150K, and you contribute to the full allowance of £60K, does the income from £125K still get charged at 45% or is this also like your example for child care where your salary income is less your pension.
Good point. That depends on how much of that was employer vs employee contributions. If that £60k was all employee contributions your taxable income would be £90k and attract 40% income tax at the most.
Thanks James. How would this differ if the contribution was 40k employee and 20k employer? Would this not mean 110k is then taxable as in your example at 40%
@@kieron8051 and I do think that’s where the majority of the hate goes, towards the so called “ entitled”. While many in the world are struggling to even feed and keep themselves warm. And the headline of the budget is how the top 1% are able to buy a few more cocktails while sitting on a beach in retirement.
It's partly a stupid artefact of how defined benefit pensions are valued, as there are two different inflation figures that go into the computation that inflate the apparent growth (and thus year's tax bill) to enlarge it bigger than would be the case with the already generous amount being added. I ran across this detail on Twitter in a deeply detailed conversation between a couple of pension boffins -- so not easily findable again.
I must admit James, this video very much feels like an indictment of the budget without saying it. The only real terms help outlined is for those over 100k income is what I’m hearing listening to this where they’re the tiny % who dont need any help…….
This is simply an outline of the changes in the budget and helping people understand the things they need to do as a result. It's not my job to take a view on whether it's fair, just to help people pick up the pieces afterward!
@@JamesShack my sincere apologies if it came across as an attack on you, I was only meaning to share my takeaway from the very well portrayed information to outline exactly what these plebs have inflicted on us :) keep up the great content good sir
Does the increase to £60k contributions mean I would need to pay in the full £60k next year before I can pay the carry forward contributions for the last couple of years?
It means nothing because Labour have said they will make more changes when in power, which is a near certainty based on polling and demographics working against the Tories
@@JamesShack They have said ‘we will reverse the change’ Idk what they specifically want to do, likely restore the LTA at the £1.8m they had under Brown, and add an unlimited cap for Medical workers.
Small point - but people were indeed limited to how much they could pay into a pension pre-2006. It was linked to your income and your age, which is one of the reasons why the Stakeholder Rules were introduced so non-earners could pay £3,600 a year in without having to prove income levels. It was something like up to age 35 you were only allowed to pay in 7.5% of your earnings and then would go up in bands, increasing every 10 years. "A-Day" or Pension Simplification is a bit of a misnomer as it was anything but simple, though it was far less complex than the myriad of previous rules that were still in force that I had to learn when doing my FPCs in 2002!
I can think of two cases, one rare, the other more common. The rare case is the super high paid. City types with 6 figure bonuses. i.e. the top 1% The more common case is people who suddenly inherit a fat chunk of change from a parent. You sell their house and suddenly you've got a few £100k. If you earn more than £40k then you can put upto £40k for this year and if you typically only pay in (say) £6k/year, then you will have a load of unused Annual Allowance from previous years (£34k/ year for this years and the previous 3 = £136k (gross) ) that you could pay in. With these changes that would go up to 4x£54 = £216k Not bad for someone earning "just" £60k. It would also mean they effectively worked 4 years tax free !!
So if you earn 60k, you can get tax relief by putting 48k into your pension, however earn 20k and can only put 16k away, even if you've a lump sum of 48k you could put in, say from an inheritance? The rich get richer. For the less well off, the rich pull the ladder up.
@@terrybrown3486 good point, however the chances are the 48k in my example had already been taxed and unless it's changed, the carry forward means you can still only put in upto 100% of your current yearly salary. The carry forward works well if you've had a big salary increase in the current year.
You CAN put that 48k in to your pension. But it wont qualify for income tax relief, because you didn’t pay income tax on it. It will then grow tax free. But you’ll pay tax when you receive it back from your pension, which makes it less attractive than the alternative option: Putting any excess over your pension annual allowance (after rolling up unused previous allowances) in to an ISA instead.
I will never understand the argument from people that have this view which seems all yo common nowadays. If you earn £20,000 per year and you put £8,000 into your pension you will get (in this example) £1600 relief or rather 20% back because that's your tax band that you would have paid. Someone in the 45% tax bracket gets, guess what 45% relief because that is what they pay. It would not be fair for someone paying 20% tax to get more relief than 20% would it? Similarly, someone paying 45% tax wouldn't make sense for them to get say 50% tax relief, because they haven't ever paid it in the first place.
This screams of somebody who doesn't have kids. One of the reasons I left the UK was because the childcare costs and quality are shit. The 'free hours' is effectively a scam. The government doesn't compensate and provide enough funds for the childcare centres to cover costs and develop better facilities. What actually happens is they pass the costs onto the parents. It's also important to highlight that it's not all year round and it's a certain number of weeks. Why is childcare so poorly prioritised in the UK is beyond me and I'm so happy I'm not there to raise my son there
Too right! For me, if you don’t put your child into the nursery full time, they don’t offer the full 30 hours. In fact it gets worse, as the owner of the nursery said to me they have to charge more to reclaim the cost of providing the free hours. The government doesn’t reimburse the cost! So this new scheme will make things worse
This feels like a warmed over Liz Truss budget... replacing tax cuts for 45% taxpayers with a pension tax cut for 45% taxpayers. If you can afford to put 40,000 or even 60,000 into a pension the cap is not the reason you are leaving the workforce. I believe the main reason for 55 years olds leaving is due to ill health and long waiting lists. I know someone who has waited 5 years for a knee operation. As for 'free' childcare. Imagine it costs £10/hour for a baby nursery place in Derby, under the current funding the government pays £5.87 per hour (for 2 year olds). So as a nursery owner for every 1 hour I give 'free' I have to add 4.13 to my hourly rate.
Well said. No one knows when pension age/pension tax will go up, any future government can do this. Chance I will keep ISA too as a bridge to retirement.
Even if inflation falls to 2-3% the damage the current inflation levels do to us will persist, as for most people earnings are not keeping up with past/current inflation. Many also mistake falling inflation with falling prices. What it realy means is that prices will continue to rise it will just be happening at slower peace. In other words current prices will never go down, the opposite will hapen. Abolishing pension allowance should be more targetted to make it more fair to society. If my CEO leaves the job and retire early no one will cry after him, if the NHS doctor does the same than it is a problem. This budget does not affect me at all, it is (sadly) for the rich people not for a Joe like myself. I can't wait for this government to be replaced in next general election.
I am going to disagree with you here, the economy lacks workers across the whole spectrum, not just doctors. To bring the inflation down BoE needs to destroy excessive vacancies. Or gov can incentives workers to stay in the workforce. Or open boarders again to restore flexibility of the labour market.
![The BIG Financial Risk That Everyone is Underestimating [Must Watch]](/img/1.gif)
It you have any questions about the new changes, and how they might affect you please leave a comment!
I have no faith that in 3 years, let alone 18 years, that the lifetime allowance won't reappear. I thought it may double but feels they are just opening a door for all their friends to cash in massive pensions with no excess tax. I see Jeremy is only a couple of years away from being able to do that, what a coincidence.
Hi James, can you share your thoughts about the awful performance of the markets that has effectively wiped out my own pension contributions for the last 2 years at the very least despite the governments 25% additions? I've seen the last 2 years gross contributions completely lost despite continually pumping in as much money as I can afford including offsetting higher rate tax considerations. Many thanks.
Is one still limited to contributing pension contributions up to their gross salary? Let's say someone earns £35k but the pension annual allowance in 2023/24 is £60k, can that person only contribute £35k?
@@caracal9458 Yes LTA is definitely coming back. Labour have vowed it will return.
I'll just be maxing out my £60k for now and worry later. It's a nice problem to have and there are ways around it.
James, I'm late to the party but I think you need to be wary of putting £ figures on the increase in free hours given that nurseries up and down the country already put in loads of stipulations and additional costs for 3-4 year olds which make it less "free" and more "20% discount" which is going to impact new 1-2 childcare. That's before mentioning that some nurseries might not be able to afford to shoulder this (and thus close) nor does the Govt set out any strategy for increasing the availability of nursery places, considering in many places around the country nurseries operate on a long waiting list.
Appreciate this delves a little bit into politics but thought it was important for anyone who is planning financial decisions around thinking they'll be thousands of pounds better off because of this. The vast majority of parents will not be, and some will end up *worse* off.
Thanks
Thank you very Much Mat! This is very much appreciated!
I am not getting excited about changes to pensions, labour is already saying they will make changes if they to power. How are people meant to plan for retirement if rules change every couple of years?
That’s why nobody retired or planning on retiring in their lifetime will vote labour in
The LTA change itself affects few people.
But the Tories have goaded labour into that initial reaction ( which was predictable) and this will remind a much larger base of people that Labour could change a lot more than just the LTA. That uncertainty could push some voters on the fence away from Labour. 🤷🏼♂️
I understand your concern, but as James says at end of this video...over-concern could lead to paralysis. For me, I'll be taking full use of new annual allowance until arrested :-). @James...you say only a few folks are affected by the lifetime limit change, but what are stats on this...I suspect it's more than a few but understand it's likely to be a lowish percent of total distribution of pension pot values?
Thank James, Great recap of the major points of the budget which we can take advantage of. Still disappointed that the government seems to be prioritising making the wealthy wealtheir
A video on tapering of pension allowance would be super helpful!
Thanks for the nice clear presentation and highlighting things that aren’t immediately obvious.
Hi James, I am just a bit confused about the difference between the Pension LTA still being in place in 2023/24 but anyone breaching the allowance not facing any tax charges and the LTA being abolished in 2024/25. Does this mean that any withdrawals in 2023/24 will still count towards your % of your tax free LTA allowance. Eg a withdrawal of £100,000 in 2023/24 would account for almost 10% of your LTA allowance and therefore this could be relevant should the LTA be reinstated in the future. Whereas, if however, £100,000 is withdrawn in 2024/25 it won't count against any possible LTA because it has been totally abolished. If this is the case could timing of any significant withdrawals could be really important in the event of a future government reversing the abolition of the LTA. Sorry if this is not at all clear!!!!
This has not been made clear yet.
But the the use of your tax free allowance will still be tracked, so even without the LTA Labour could use that as another tracking point to install future limits.
The other argument is that, if you are over the LTA, next year may be the best year to fully crystallise your pension as you can be certain of no LTA charge in that year. Although you need to balance that against other factors like IHT concerns.
@@JamesShack thank you so much for the clarification, that's really helpful. It hadn't occurred to me that a future government could still track crystallized sums in years where the LTA has been abolished and that they could still count if the LTA or similar is reinstated in the future
And here I am as a degree qualified Electronics Engineer struggling to even pay £5k a year into my pension. £60k seems lightyears away.
James, can you please do a video explaining how PAYE, Income from Dividends and income from Capital Gains all play together? An example is let's say i earn £99K so £1K off the point that personal allowance is reduced I sell £10K of stock minus allowance of £6K so i have to pay tax on £4K at 20% and i get £5K from dividends. So minus the Div allowance of £1K leaves £4K taxable (which is taxed at 33.75%) - some examples just pile it all ontop as if its treated the same so 99+4+4 107K of taxable income but it can't be that simple or how else do they work out the different rates for different classes.
Is there any chance you can do a video on Forces Pensions? There’s so much changing that a
Really simple video would benefit us!!
Hi James I’ve watched quite a bit of your content and I think this is of the best ones I’ve seen. The way you take a pretty complex subject and make it so simple is brilliant! It makes me realise I have a long way to go with my own content 🤔
Practice practice practice!
Good luck!
Thanks James just spotted my typo! Keep up the great work and I will keep practicing 😂
Thanks James. Given there looks to be a small window between the LTA being abolished in 2024 and Labour likely to reinstate it in 2025, would you think it worth considering waiting to crystallise the whole of a pension fund that has breached the LTA limit during that window? What relevance will the percentage of LTA used up before 2024 have in the event of abolition an/or reinstatement?
It’s impossible it say what any future Labour government will do if they were to get it. But from next year someone over the LTA could crystallise in full with no charge.
In the future, if an LTA is reintroduced that may not be possible. But again we have no idea what that might look like.
Hi James. Great video. I have a potentially unrelated question. Are people who earn less than the annual allowance able to use pension carry forward? For example someone who wasn't earning anything (and can therefor only contribute £3,600 gross) can they carry forward 3 previous years, making a total of 4 x £3,600?
Have been looking forward to this :D
I think it’s worth mentioning how much of a mess the HMRC make of the HICBC. I’ve personally been told that even though I’m making extra contributions to bring me under £50k. But my standard pension contributions don’t count apparently.
Thank you for the content. I feel (and hope) that I understand enough to ask a question. Due to a great DB pension which I changed to DC style and a bit of performance I have gone above the LTA. I am a pensioner. I have taken the 25% tax free. The bit above the limit I left hoping that something might change. Feels like this is it and instead of taking income from my crystallisation pot I should access my pre retirement pot and start taking that bit above the LTA as income? I won’t expect advice but am I making any sense? Thank you again and to anyone else reading this far a bit of a poor health outlook caused me to get out of my DB 👍
Hi James. Ltd Co director and one BTL. Can’t up pension contributions, so doesn’t seem like anything in it for me?
Hi James, I recently turned 55 and started taking my DB pension and continue to work and pay into my work pension. You mentioned the amount you can contribute to a pension, once taking a pension, has gone up to 10k but am I right on thinking this in only for DC schemes. As my pension is DB I can pay in as much as I want?
A basic pension video be great very confusing, so currently if I earn over 50k I pay the higher tax band on that ? Does my tax code change for the next year or just pay more on what I earn over that so say the last 2 months of the year pay when I hot that ? If so how would someone go about paying a one off payment into pension to get back under that 50k ?
Thanks james
The simplest was to do this is via a SIPP from any of the big investment platforms. You can then make contributions into that from your bank account.
If you earned £55,000 you would pay £4,000 into the SIPPA and HMRC would then add 20% tax relief (£1,000) to the pension. You would then claim back the additional 40% tax via a tax return.
Great video. Good that you’re so up to date 👍
I did not know that pension contributions could be used against childcare benefit eligibility! Not sure if this will apply to my family but going to look into it! Thanks for another great video
Hi James, great video as always.
I have a question about transferring money from an ISA into a Pension.
You mention a couple of scenarios ("just over" £50k and "just over" £100k) where making pension contributions can be particularly advantageous.
But someone on (say) £70k might not have (upto) £20k to hand and someone on £130k might not have £30k to hand. But they might have those sums in their ISAs.
I (think) I understand the relative merits of the two vehicles but what I don't have a feel for is, "What is a good ratio for pension pot to ISA" ?
In a previous video you alluded to the benefits of drawing down investments (ISAs) and Property before touching the pension pot as a way of shielding from Inheritance Tax.
So if someone has say a £300k pension or a £600k pension or a £900k pension, what would be a good size for the ISA ?
A very large ISA means you're probably not taking (haven't taken) full advantage of your pension.
A very small ISA means that in the even that you suddenly need a large sum of cash, you would have to draw on your pension (assuming you're over 55) or secure funds from elsewhere (loans ?).
Is there a good "Rule of Thumb" or are there two many variables and it genuinely is going to be different for everyone ?
There’s not. Pensions are more tax efficient then ISAs. But an ISA is more flexible, which is good for those earlier on in life. As you get older you can always use your ISA to contribute to your pension so you can keep flexible until you no longer need that flexibility.
Of course there is always the risk that rules may change, so it’s often useful to keep a balance of both until closer to retirement when you can try to max out on tax efficiency.
“Transferring money from an isa into a pension”? Did you mean just pay more salary into pension, and spend the ISA as income to compensate? Cus just transferring ISA into pensions doesn’t make sense - as you have already paid your income tax on that money.
Please can you wear a t shirt,the hairy chest view is bizarre.
Should be the same, as you'll get tax relief on the contributions when transferring from ISA into a pension at your current tax rate
@@JamesShack is it really correct to say pensions are more tax efficient? Yes you get tax relief on the way in but you also pay it on the way out. I’ve always viewed my ISA as the gold standard of investment vehicle, being shielded from tax forever even upon drawdown.
The pension contributions you mentioned that bring your taxable income back below the £50000 mark so as to not effect child tax benifit. Can this be done with a public sector defined benifit pension too if they allow extra purchases as part of the scheme?
I’ve never advised on that before. But it might be possible. Alternatively you just setup a private pension and contribute to that.
Hi James, great video; thank you! Could I ask a really random question please, totally unrelated!! Where did you find your dining table/bench? Looking for something similar!! Thanks so much :)
Haha! I made it from old scaffolding boards during lockdown. Bought the keys from Etsy.
Great explainer video as ever James.
James! I've put 16k into my SS ISA. I can't decide whether to open a Lifetime SS ISA for the 4k or keep all 20k together. I don't know what to do and times running out! 35 saving for retirement. Thanks!
You can open a lifetime ISA with just £1, as long as you haven't turned 40. Worth doing just so you have the option of adding to it in future
My son has both and he moves £4k each year from the SSISA to the LISA to get the £1k from the government. Cannot get a 25% yield anywhere else.
If you don’t need that £4K until you turn 60, then the LISA could be a useful tool to diversify. Although if you are a higher rate tax payer, a pension would likely be more tax efficient.
Great video as always James, yours are the clearest and most helpful I’ve found anywhere… Do you think it is therefore worth considering losing the 2016 LTA protection by making pension contributions again now that the LTA has been abolished ? And, secondary question, am I right in thinking the £4K now £10k contribution limit only applies if a taxable income has ever been taken from a draw down pension, not if all that has been taken is the 25% tax free cash ?
Yes this only applies if you take money flexibly from a crystallised pot ( ie the fund has already paid out tax free cash)
We’re still just trying to get our heads around it to be honest. It sometimes takes a few weeks for the fine print to be know because there are so many nuances. But I think those with protection can now join new schemes and keep contributing:
techzone.abrdn.com/anon/public/pensions/removal-LTA-what-we-know?opendocument&ADV-TEC-Not-Eligible-17032023&Eloqua&CSLAR000000225063
That is right, MPAA applies when you flexibly access the taxable part.
Another great video. Would you consider doing one on civil service pensions?
Does inflation actually reduce debt? It might be smaller in relation to the cost of ‘things’ but unless your wages have matched inflation then the debt burden is unchanged. If your wages haven’t matched inflation then the debt becomes harder to service, surely?
Hi James,
Not specifically about this video, but still it bugs me... in the last 12 months I've paid more into my pension than ever before, but still the overall pot of money has barely gone up at all. This must be due to the stock market and the fund performance being negative overall. But I guess I've bought more 'units', right? -At a cheaper price, so can I expect this period of no-growth to pay-off better in the long-run or have I truly lost a year? Forgive the dumb question.
Not a dumb question Nigel. Likey, as you rightly say, you will have bought more units at what would normally be a cheaper price.
In the long run as markets recover (hopefully) you will benefit. Good luck 👍
Yes, you'll have purchased more units. I'm in Vanguard Life Strategy 100% (i.e:, 100% stocks and 0% bonds). That's gone up 0.81% in the last year to date which is negligible. I always continue to put money in as I'm purchasing more units. It's even cheaper now than it was before so the more I put in now, the more units I get for my £££.
Yes that’s normal, some years markets fall and it won’t look like your contributions are doing much. But your buying in more and more for when the market eventually turns back the other way.
Stock market growth has been shyte in the last few years. But it will turn around, you just need to wait.
Hi James…. In my pension i can either add AVC’s additional voluntary contributions, or I can add extra contributions to my pension. Why are there these 2 options? Why would anyone choose to add extra to your pension when there is the AVC, with all the benefits that come with it? Has it got something to do with a maximum limit on AVC’s?
Do you have a defined benefit pension?
@@JamesShack it’s called a defined contribution planned aka a money purchase plan.
There goes the incentive to invest in ISAs (assuming ofc access to the cash isn't needed until retirement)
And when is that exactly because goal posts change every few years? Chance ISAs are necesarry to mitigate the risk comming from this pension ping pong game this (and likely future) government is playing.
Personally, I’m prioritising ISAs over a pension right now but still doing both) because I’m 33 and about to start a family so I have no idea what extra cash I might need in the future.
I can also use those ISA funds to make large tactical pension contribution when it’s most efficient, for claiming back allowances or childcare.
So there certainly is still reasons to run both.
Pist’s comment is also not invalid.
@@JamesShack well said. The price for this flexibility is not earning compound interest on tax relief that does not apply to ISAs.
So is it worth increasing pensions if someone is earning more than £50000 to avoid paying more tax on income ?
Just got back from a skiing holiday James?
If retired, and I haven't yet accessed my pension, my assumption is that I can now pay up to 10,000 into my pension, whereas the previous limit was 4,000? thoughts James please
If you are not employed, and have no pensionable income, the maximum you can put in is £3,600 (Inc tax relief). The same as before.
So am I right in saying for somebody who earns say £35k per year, this has not helped them one bit, as they can still only put in upto 100% of their salary (£35k). ie. they couldn't transfer any additional cash from other savings into their SIPP over and above what they earn. So this really has only helped people that are already very well off / earn well above the national average salary.
I wish I understood all this stuff!
Regarding the so-called 30 hours per week free child care, it should be made clear that this is based on a notional 38 week school year.
This means that if a child is in a nursery operating year-round, the actual number of hours paid for by HMG is 22, not 30.
(The 15 hours per week are in effect 11 hours).
I am not surprised that the Government is keeping quiet about this, but commentators (even the sainted Martin Lewis) seem to be missing this point!
Great synopsis James
Hi James, my Dad is 91 and has a pension of £50,000 + per year. Would it be a good idea for him to now put £10,000 ( affordable from pension income ) a year into a SIPP to shelter some of his money from inheritance tax ?
Just read max is still £3,600 per year if no pensionable income .
Blimey, what job did he do? General, admiral?
Should have re-indexlinked teh personal tax free allowance. The pension changes bring no current relief for anyone and as you can't benefit from the increase in annual contributions from 40 to 60k unless you earn that much. The LTA should have been index linked again so people on normal salaries don't run into that later, no need to scrap it. Anyone on higher salaries who is paying tax charges on annual pension contributions should be bright enough to pay attention and take measures to mitgate that. But all the tax charge does is put the excess pension contribution back on the same footing as other savings made from taxed income.
Unfortunately, this will be reversed by the Labour party when they take office in a year or so. Unless you are a doctor or consultant it will be a mute point. How can we plan on this basis?
I'm most worried about the freezing of the tax free limits to drawdown - in 20 years that will be not very much
That would be a blow, but pensions would still be worthwhile as you’re still likely to get more tax relief on the way in than tax on the way out.
Has the annual amount that someone who doesn't have qualifying earnings (e.g. housewife) also increased to the £10k per year?
Hi is there any IHT on pensions? Compared to ISA?
Pensions are not subject to IHT generally but your ISA would form part of your estate
Hi James. Do these new changes take effect from the new tax year only?
So you're saying I can pay £60,000 into my pension when this kicks in and get back my child care allowance?
Next tax year. And the child care extension is being phased in from April 2024
Another great video. Thanks.
Really interesting. Could you confirm if SIPP contributions count when you refer to 'Pension conrtibutions'? Or are you referring to workplace pensions. I ask as a freelancer with a kid in a nursery and I'm likely to earn over 100k in a tax year, I invest in a SIPP.
yes it includes SIPP.
Do you not freelance though and LTD company ?
@@JamesShack not yet. Does that make it easier to arrange pension finances?
Makes it easier to manage income yes.
@@JamesShack Appreciate the reply. I'll look into this. Thanks for all your great content too.
James, Has the amount you can add to your pension with no earnings increased also from £2880? I cannot seem to find this out on line.
No it hasn’t
James, is there any clarification on the tax free cash situation. It seems straightforward; everyone says it's a lifetime amount of £268275. But is it? What about people who used up their LTA when it was only £1m? They got £250000 tax free at that point. Several years later, they now have further uncrystallised pension funds available (in excess of £73100). Clearly, they'll take the opportunity to crystallise without an LTA charge, but can they also get their remaining £18275 tax free cash? Or are they still going to be said to have had 100% of their lifetime cash, even though it wasn't, at that time, £268275?
If you have used up 100% of your LTA you cannot get additional tax free cash. The works in the same way as it did before, even of the LTA increased, if you had used up your LTA you don’t get a higher one.
Unless you have used up say 80%, then you would get 20% of the new higher allowance.
@@JamesShack Thanks very much, James; not the answer I wanted but, I have to admit, it is the one I expected! But, at least I now get an opportunity to avoid an LTA charge and can access funds that were, for all practical purposes, locked away until age 75.
Yes I've been increasing my pension contributions to get below 100k so that I can get the 30hrs. It's made a massive difference. Not getting near the 60k a year though! However, it all helps.
Excellent!
@@JamesShack it's thanks to your past videos that I learned about the 60% tax trap. So I'm very grateful.
James, I learnt a lot as always, thank you. I believe I read recently that the best way to ensure your children inherit your pension pot, assuming I croak first, followed by my wife, is to leave 98% to my wife and 1% to each of my two children. If my understanding is correct, can you explain please how that works as it doesn’t make a lot of sense to me. I.e. what is the point of getting 1%? Does it have advantages once my wife dies?
The idea is that if you and your wife died at the same time, the pension trustees could easily see who was next inline to inherit.
🤯 And this is why I'm coming to see you guys tomorrow 😂
I understand that the PCLS is frozen at 25% of the current LTA. What is the situation for UFPLS? If you were lucky enough to have a £2M pot, could you still take unlimited withdrawals where 25% of each one is tax free?
No. Each time you do an UFPLS it will you up some of your tax-free cash allowance.
Re the MPAA cap on contributions, I'm currently on a lower limit of £3600 because I have no earned income. You are currently limited to the higher of £3.6k or your earned income. So far, I haven't found any reference to this in the budget commentaries so assume that its unchanged. Can anyone confirm that this is unchanged.
This is unchanged as far as I am aware.
2.5% by year end.. dream on
James what is the minimum salary you need to earn if you want to salary sacrifice the full £60k (assuming its actually £48k given the 20% government contribution)?
Unless you are utilising carry back/forward from previous years, then the most you can contribute is 100% of your earnings.
So to contribute 60K to a pension, would mean you would need to earn £60K minimum.
@@Mr35000000 You can only get tax relief on the earnings in the tax year the contribution is made, so if you could pay £70,000 including carry forward, but you only earn £50,000 you could pay £70,000 but you would only get tax relief on the first £50,000. Regarding salary sacrifice, you still must be paid the minimum/living wage by your employer so you cannot sacrifice below that amount in each pay period. The balance however can be paid under Relief at Source.
@@iain8567 I have a SIPP funded by my Limited Company. Could I not pay £100K into my SIPP from my limited company, utilising previous years allowances. Then this would create a £100K loss to the Limited Company, giving me tax relief on the full amount?
@@Mr35000000 Employer contributions are subject to different tax rules to personal contributions. Whether Corporation Tax relief is granted depends upon whether the local inspector of taxes considers that the contribution is wholly and exclusively for the purposes of trade. Your accountant will be able to provide advice on that issue.
Employer contributions still need to be within annual allowance limits.
Someone is clearly a financial planner, cheers Iain!
Great video ever James 👌👏👏. Can you add the £10k back in from pension drawdown income or does it have to be earned from employment?
You need to have the income from employment.
@@JamesShack
Hi James,
Thank you for putting this video together so quickly. It's really helpful.
I have a quick question, my husband and I are both retired.
My husband receives state pension, Canadian Pension Plan and a bit from his uncrystallised SIPPS to make up his personal allowance.
From my SIPPS, I receive my personal allowance and 25% from drawdown. I am not of state pension age but I have retired early.
We both also receive income from a loan trust bond and gain good interest on our ISA'S by investing in a smoothing product.
Presently, each of us invests £2880 + the tax relief into our pensions so £3,600 per year.
As we've both triggered the money purchase annual allowance, from 6th April 2023 would we be able to increase our pension contributions from income from other sources such as our bond and ISA'S to £10,000 per year?
A budget for the 1% jam tomorrow for the rest of us .
Hi James, if i get close to the 50k salary and lets say i want to keep my child benefit, would the extra pension contributions be made through salary sacrifice or i could just increase my contribution % from 4% lets say to 6% to keep me lower than 50k. Thank you for the great content
you can do it either way chap, easier to do it via salary or you can call hmrc and claim it back that way... I do it via salary.
You can do it by increasing your % contribution into your work place pension. This is simple to work out if you have a salary sacrifice pension.
Alternatively you can contribute directly to a SIPP. With this, say your salary is £60k you would need to make a £8k payment into a SIPP, which would then get 20% tax relief (£2) leaving you with a £10k pension contribution. You would need to claim the additional 20% higher rate tax back via a self asset tax return.
Much easier to just do it via salary sacrifice, and you also save on national insurance.
I've just increased my pension contributions to 20% for the last 2 months. I'm just under the 50k. I've been stung previously with the child benefit so I just put more in my pension.
@@JamesShack This is disgusting. Rich getting richer using exploits they themselves create to enrich themselves while poor getting poorer. Hope more working class start striking and making the rich do everything themselves
Excellent question! Exactly the same scenario I’m facing at the moment (trying to keep all child benefit from 2 children).
Hi James,
I am a high earner and I can afford to contribute the £60k a year. I am 27 and a long way away from retirement, I’ll likely be tapered in my career and was thinking of contributing now. However I am concerned of Labour changing the policy. What should I do ?
Having done the maths, my pension is well on track to exceed the former lifetime allowance
I think you should take full advantage of the reliefs and allowances now whilst they are available
Hi Phil, I can’t give personal recommendations but it’s important to post the rules at they are.
If they do remove it in the future they often put protections in place for those at or near the new limits.
And you could just stop contributing in the future.
We will be advising all clients to use the allowances if it’s suitable.
Ofc if you’re young, it’s important to have enough outside of pensions incase you need it .
I’m 33 and don’t pay much into my pension because I think I’ll need the cash for stating a family/ new home. And I can stick what I don’t end up needing into a pension later.
27 and a (very) high earner. Interesting, what job do you do? FX trader? Just interested. In your position you could retire ten years before state pension age, quite easily.
Hi James, excellent content as always. I"m 51 and stopped putting money into my pension back in 2014 and instead maxed out my ISA and partner ISA/ pension allowances. This was to protect my, at that point, 1.5m protected penions allowance. Now that there is no pension cap, should i now move as much of my ISA funds as possible into a pension wrapper? (they are both in Vanguard life strategy funds). Thanks for your help!
Hi bud, just thought i would comment on this, since you have already paid tax on your isa holdings(as it was paid out of your salary after paying tax), if you were to transfer it in to your pension, assuming you stayed within the max contribution rules, the government would uplift whatever you paid in by 25%, and if you are a high(er) tax rate payer, you could claim additional monies back. So its a win win :)
Hi John, I can’t give you personally advice but the pension wrapper is likely to be more tax efficient than the ISA and it’s also outside of your estate for IHT purposes.
Great video James ..as always ! Any news on the ISA Allowance?
Remains at £20k
Do we know yet if the child benefits will extend to northern ireland?
I’m not sure either.
Hi James, my wife retired at the age of 55 and has triggered the MPAA with her SIPP due to a 25% withdrawal but she is not withdrawing a regular pension. She has an amount of savings outside of her ISA (through inheritance) will she now be able to put £8,000 per year (as a basic rate taxpayer) into her SIPP although she is not in receipt of any taxable income. I am in full time employment and am utilising the unused marriage tax allowance.
Are you certain that she has triggered the MPAA? If you check other videos that James has done, you can take a lump sum so long as you put 3x as much into a drawdown pool at the same and don't touch that by starting to withdraw from that sub-pot of money.
@@AlanPeery Hi Alan, yes she has notification that her MPAA has been triggered (it was a fairly small SIPP) with the previous intention of contributing £3200 per year from a recent inheritance. And then withdrawing from the SIPP when she is in receipt of a DB pension at age 60, keeping the total taxable income below the 20% threshold. If she can now contribute £8000 per year, this would require a whole new spreadsheet to understand the optimal fulcrum point.
What I did not say is that she is maxing out her ISA allowance each year from the inheritance, its how best to get her inheritance legally within a tax wrapper.
She should still be able to put £3,600 (£2880 + tax relief) into a pension each year.
I’m a childminder and slowly the government has taken over our business starting 3-4 yr of age free for £6ph then 2yr old and now from 9 months where we cannot charge them top up to get in line with low income bracket. Many nurseries also will close as this is not sustainable. A big disaster is coming. Regarding pensions this is all for the rich to put their money secured before the fall of the markets. Hey, we can always sing the hockey docky!
Only applicable for the high earners living in London.
Hi James, I am drawing down on my Sipp at the moment as I am retired, I understand I can only add £2880 per year since taking drawdown is there any change to this £2880 limit?
No there is not.
So if I have 50000 in stocks and shares(outside ISA) it would be beneficial to put all into a pension and claim tax back. I am a higher rate tax payer on c130k payer annum or better to pay 30k of salary into pension to bring salary to 100k.
Cheers
I can’t say whether that would be suitable but you could do it. £30k each year to bring you back to £100k.
In before they raise the pension age to 99 so we can never withdraw it
Let's be honest - the LTA removal is designed to be a vote winner but will never actually affect the vast majority of people. Firstly most people get nowhere near the LTA. Secondly, the tories know labour will slam an LTA back in place the second they get into power. It's a matter of when, not if.
I would have been far more impressed with a modest increase in the LTA, and a resolution to resolve silly tax humps where your incremental rate becomes punitive, removing the incentive to progress.
Another reason I dont think its a vote winner its that most people who wish to contribute over £40K per annum and are likely to gave a pension pot of over a million pounds, probably already vote Tory.
Cant see this plan winning over many of the red wall voters.
Really appreciate James’ content.
But it does grate when I hear ‘free child care’.
We are taxed, at threat of going to jail, to pay for it all. Whether we want to send our children to a complete stranger earning minimum wage with no emotional or physical investment in them to raise or not, we still have to subsidise it.
Everyone thinks the state is doing them a favour when they make it easier for mothers to go in to the labour market to be wage slaves and end up drowning in consumer debt and almost nobody can see how the Gov is actually screwing you over.
PS - I don’t know much about them but is it worth mentioning making pension contributions for each of your children as well to help reduce your exposure? Is it £3k or so a year per child? Then obviously a tax rebate added to that.
You could do that, but they won’t get access to it until the year 3000 … So the money may be better off in a vehicle you or they can get earlier
over 905 of the UK of the uk is not effected by LTA the majority never put 40k into a pension and 60k is a dream for most but saying that i welcome the changes I ask myself what will the next govt do I dont trust politicans and i think there could be a trap going to catch investors I will use pensions and i will never breach the 1m so as far as i can see i will press on and invest up to the age of 75 another 10 years
Hi James, thanks for your video very informative. One question I have is say you earn £150K, and you contribute to the full allowance of £60K, does the income from £125K still get charged at 45% or is this also like your example for child care where your salary income is less your pension.
Your taxable income will then be £90k (150 minus the 60k pension contribution)
@@kevinsyd2012 he is including employer contributions
Good point. That depends on how much of that was employer vs employee contributions. If that £60k was all employee contributions your taxable income would be £90k and attract 40% income tax at the most.
Thanks James. How would this differ if the contribution was 40k employee and 20k employer? Would this not mean 110k is then taxable as in your example at 40%
Please ignore my last reply, misunderstood! You answered the question perfectly thanks.
It’s nice to know how much I could of put into my pension if I was a lawyer, banker or drug dealer!!!
Downsizing/inheritance, that’s exactly what drug dealers would say
😄 oh my you just gave yourself up Kieron, everyone knows that drug dealers don’t have a sense of humour
@@kieron8051 and I do think that’s where the majority of the hate goes, towards the so called “ entitled”. While many in the world are struggling to even feed and keep themselves warm. And the headline of the budget is how the top 1% are able to buy a few more cocktails while sitting on a beach in retirement.
Question needs to be asked, why are doctors getting so much pension contributions from the tax payer? Disgusting amounts!!
It's partly a stupid artefact of how defined benefit pensions are valued, as there are two different inflation figures that go into the computation that inflate the apparent growth (and thus year's tax bill) to enlarge it bigger than would be the case with the already generous amount being added. I ran across this detail on Twitter in a deeply detailed conversation between a couple of pension boffins -- so not easily findable again.
There never seems to be anything to help those already in drawdown…
I must admit James, this video very much feels like an indictment of the budget without saying it. The only real terms help outlined is for those over 100k income is what I’m hearing listening to this where they’re the tiny % who dont need any help…….
This is simply an outline of the changes in the budget and helping people understand the things they need to do as a result. It's not my job to take a view on whether it's fair, just to help people pick up the pieces afterward!
@@JamesShack my sincere apologies if it came across as an attack on you, I was only meaning to share my takeaway from the very well portrayed information to outline exactly what these plebs have inflicted on us :) keep up the great content good sir
Does the increase to £60k contributions mean I would need to pay in the full £60k next year before I can pay the carry forward contributions for the last couple of years?
Yes.
It means nothing because Labour have said they will make more changes when in power, which is a near certainty based on polling and demographics working against the Tories
It would be very strange for Labour to re-instate a failed Tory policy. If Labour get in they should come up with an entirely new solution.
@@JamesShack They have said ‘we will reverse the change’
Idk what they specifically want to do, likely restore the LTA at the £1.8m they had under Brown, and add an unlimited cap for Medical workers.
Let’s see what happens after the next general election.
Small point - but people were indeed limited to how much they could pay into a pension pre-2006. It was linked to your income and your age, which is one of the reasons why the Stakeholder Rules were introduced so non-earners could pay £3,600 a year in without having to prove income levels. It was something like up to age 35 you were only allowed to pay in 7.5% of your earnings and then would go up in bands, increasing every 10 years. "A-Day" or Pension Simplification is a bit of a misnomer as it was anything but simple, though it was far less complex than the myriad of previous rules that were still in force that I had to learn when doing my FPCs in 2002!
The contribution limit was 17.5% of your income, not 7.5%.
Who TF can afford to put in 60k per year 🤷♂️
Yeah, he means well, but cmon ffs
😂
Most additional rate taxpayer I guess
Those who changed the rules.
I can think of two cases, one rare, the other more common.
The rare case is the super high paid. City types with 6 figure bonuses. i.e. the top 1%
The more common case is people who suddenly inherit a fat chunk of change from a parent. You sell their house and suddenly you've got a few £100k. If you earn more than £40k then you can put upto £40k for this year and if you typically only pay in (say) £6k/year, then you will have a load of unused Annual Allowance from previous years (£34k/ year for this years and the previous 3 = £136k (gross) ) that you could pay in.
With these changes that would go up to 4x£54 = £216k Not bad for someone earning "just" £60k.
It would also mean they effectively worked 4 years tax free !!
🙏
So if you earn 60k, you can get tax relief by putting 48k into your pension, however earn 20k and can only put 16k away, even if you've a lump sum of 48k you could put in, say from an inheritance? The rich get richer. For the less well off, the rich pull the ladder up.
It's the tory way
Think you can carry forward from previous tax years so put more than that in. The richer are taxed more and getting that tax back so not to unjust.
@@terrybrown3486 good point, however the chances are the 48k in my example had already been taxed and unless it's changed, the carry forward means you can still only put in upto 100% of your current yearly salary. The carry forward works well if you've had a big salary increase in the current year.
You CAN put that 48k in to your pension. But it wont qualify for income tax relief, because you didn’t pay income tax on it. It will then grow tax free. But you’ll pay tax when you receive it back from your pension, which makes it less attractive than the alternative option: Putting any excess over your pension annual allowance (after rolling up unused previous allowances) in to an ISA instead.
I will never understand the argument from people that have this view which seems all yo common nowadays. If you earn £20,000 per year and you put £8,000 into your pension you will get (in this example) £1600 relief or rather 20% back because that's your tax band that you would have paid. Someone in the 45% tax bracket gets, guess what 45% relief because that is what they pay. It would not be fair for someone paying 20% tax to get more relief than 20% would it? Similarly, someone paying 45% tax wouldn't make sense for them to get say 50% tax relief, because they haven't ever paid it in the first place.
This screams of somebody who doesn't have kids. One of the reasons I left the UK was because the childcare costs and quality are shit. The 'free hours' is effectively a scam. The government doesn't compensate and provide enough funds for the childcare centres to cover costs and develop better facilities. What actually happens is they pass the costs onto the parents. It's also important to highlight that it's not all year round and it's a certain number of weeks. Why is childcare so poorly prioritised in the UK is beyond me and I'm so happy I'm not there to raise my son there
Too right! For me, if you don’t put your child into the nursery full time, they don’t offer the full 30 hours. In fact it gets worse, as the owner of the nursery said to me they have to charge more to reclaim the cost of providing the free hours. The government doesn’t reimburse the cost! So this new scheme will make things worse
This feels like a warmed over Liz Truss budget... replacing tax cuts for 45% taxpayers with a pension tax cut for 45% taxpayers. If you can afford to put 40,000 or even 60,000 into a pension the cap is not the reason you are leaving the workforce.
I believe the main reason for 55 years olds leaving is due to ill health and long waiting lists. I know someone who has waited 5 years for a knee operation.
As for 'free' childcare. Imagine it costs £10/hour for a baby nursery place in Derby, under the current funding the government pays £5.87 per hour (for 2 year olds). So as a nursery owner for every 1 hour I give 'free' I have to add 4.13 to my hourly rate.
Sorry! But I didn’t find this was Worded (Way Too Wordy!) & Explained in a way that made Anything Any Clearer!
Its a trap...
Well said. No one knows when pension age/pension tax will go up, any future government can do this. Chance I will keep ISA too as a bridge to retirement.
Means cap will come in 5e future so those with big pensions will not get a state pension or have it reduced.
Even if inflation falls to 2-3% the damage the current inflation levels do to us will persist, as for most people earnings are not keeping up with past/current inflation. Many also mistake falling inflation with falling prices. What it realy means is that prices will continue to rise it will just be happening at slower peace. In other words current prices will never go down, the opposite will hapen.
Abolishing pension allowance should be more targetted to make it more fair to society. If my CEO leaves the job and retire early no one will cry after him, if the NHS doctor does the same than it is a problem.
This budget does not affect me at all, it is (sadly) for the rich people not for a Joe like myself. I can't wait for this government to be replaced in next general election.
I am going to disagree with you here, the economy lacks workers across the whole spectrum, not just doctors. To bring the inflation down BoE needs to destroy excessive vacancies. Or gov can incentives workers to stay in the workforce. Or open boarders again to restore flexibility of the labour market.
Hi is there any IHT on pensions? Compared to ISA?
No IHT.
@@JamesShack what about for isa?