To claim tax credits by upping my pension contribution?

[TaxCredits]

I’ve just found out that if I up my pension contribution via salary sacrifice, we would get a substantial amount of tax credits and hardly be worse off.

I’m the sole earner on 40k - 4 kids, one with a disability.

If I put 1/2 my salary into the pension, I get income tax relief, NI saved and my employer pays the full employer NI saving.

This means that I end up with around 23k in my pension per year.

In addition we would get tax credits of around £1150, which would otherwise be tapered away at 41p per pound I earn (plus tax and NI on top)

Basically doing the sums we would be around £300 per month worse off now, for 2k in my pension! Or put another way, for every 27p I give up of income I give up now, £1.13 would go into my pension.

I would be stupid NOT to do this, right? We have to save for our future and it’s totally within the rules.

I've read before about tax credits taking earnings into account after pension contributions but when we tried to give the figure of DH's income after pension had come out, like we thought, they looked at his P60 and used his salary for that year, which included his pension contributions. I don't even get how it works?

And no one getting Tax Credits should be able to pay for private school!!!!

It's a no brainer.

It's hardly a loophole. It is well known that tax credit calculations don't include pension contributions. The government wants to encourage people to have their own pension ( and pay own care costs) rather than rely on a state one.

Have to admit, while it might not be illegal, I feel that it's certainly immoral. Stuff the bit about having a better pension, it seems you will be depriving yourself of income to gain benefits. Tax credits are benefits; people often seem to forget or not realise this.

Surely this isn’t ethical?

"it seems you will be depriving yourself of income to gain benefits."

Would it be ok to put a lot of money into a pension if the OP was a much higher earner and so would not be eligible for tax credits ( and would just be 'avoiding' paying tax)?

Do you really think people who play the system now won’t do the same when they are pensioners?

lucky

Why ever not? They are being used for the child.
It's huge snobbery to think that only rich people should be allowed to access private schools.

I am not rich. I don’t claim tax credits.
I don’t put 23k a year into my pension although DH & I try and contribute as much as we can afford.

We can’t afford private school but that’s not really an issue. They will be well enough educated under the state school system.

I would never dream of taking tax credits from govt to do this! Not sure how it would even be possible.

Call me naive but I thought tax credits were to help low income families.

No wonder the bloody Tories are still in power if they allow such immoral behaviours.
You earn £40K, well above minimum wage. You say you can afford to lose £450 a month and squirrel away half your income into your pension fund. Excellent. Don't expect me, as a tax payer, to subsidise your selfishness however. You've got 4 children whose education alone will cost the state £15K plus a year. Access to free healthcare for all of them. Family allowance for a cop,e of them. All in all you're doing very nicely off the tax payers on the whole. And now you're planning to further abuse this generosity to line your pension pocket! What a joke.

I too am appalled. It's immoral and unethical. Think to yourself - would you be happy for everyone to do this - wheee would it end? Would you be happy for benefits be reduced for those that really need it!?

Selfish selfish selfish. Lowering your tax liability AND claiming on the state when you don't need to!

Shame on you and shame on all the PPs who have backed you up.

This is an obvious "loophole" that is there for a reason. Govt want to encourage saving for old age.

Generally I am a "pay your taxes" person BUT I say yeah why not it's not like you're using some obscure trick that you've learned by hiring an expensive accountant.

I'll save my ire for the businesses and individuals who pay through the nose in order to find non obvious loopholes and avoid tax. The OP is a drop in the ocean compared to that.

I pay tax @40% and have no issue with what OP is doing. In fact, I am happy that she is able to pay into her pension as that is probably more cost effective in long run in terms of benefits (she will be more self sufficient when old).

I have to be honest and say the more recent responses are far closer to what I thought the general consensus would be. However, I think it's the right thing to do. We have been priced out of housing, and if we don't take some action will have a very difficult future.

Thanks to those who pointed out the lifetime allowance of 1 million. We'll only be getting tax credits for a few more years due to the children's ages. So this is a temporary thing.

Oh and as for the Tory bashing - always fun I agree but to bust a bubble - sadly TC were introduced by labour I believe.

Plus one last thing - I don't believe most people would do this because they want / need the income now. But when it was pointed out that by not doing it I was effectively taxed at 73% it looks like a no brainer.

Everything that is wrong about the UK nanny state. Glad I'm not paying into the coffers anymore to support the likes of OP.

It's not a loophole.

I can't believe this is possible and there's so many who think it's ok to do this. This country has no money for schools, nhs, social care etc but it's fine for people to move their money around to claim benefits and take more money away from those services. WTF!

I would like to know if anyone has ever been able to claim successfully under the scenario the OP has set out. I have never heard of this before and am sure that the tax credit authorities ask for the figure from your P60 when you make a claim or renewal of a tax credit claim. Also I believe that tax credits are due to be phased out when the whole of the country is under the auspices of Universal Credit.

Definitely do It OP, we've done it for years

Everyone I know does this. So do I. I've got to work until i'm fucking 67 so I'll need as big a personal pension as I can.

I think someone else said it up thread, and having thought about it - I agree with them.

If big corporations weren't playing obscene tricks (charging the entire UK profits for use of the name to their Swiss subsidiary, and off shoring every penny into the billions and other such shenanigans), if interest rates were higher and QE hadn't been used to help central banks/corps hoover up assets - I might have felt differently.

But we are the definition of a hard working family just about managing - and if there's a way to improve our lives long term - why can't we do it?

40k before tax does very little beyond existing where we live. The surplus comes from scrimping and managing - no cars on leases, no fancy holidays and always at the peril of a landlord turfing us out or saying they want to up our rent - and most of those are people who have benefited from the asset inflation we weren't party to.

Having thought about it - I have to go for it.

The figure from my P60 is after the salary sacrifice, so no worries. It's clear now others do this so it must be ok.

Just to wind up the huffers and puffers - you know tax credits don't look at capital? So you can have whatever level of savings you like and still claim them. They just take into account the income from them. And not even that if the money is in ISA.

Op something to consider is that some companies limit how often you can change your contribution levels. I can only change mine once a year. You will obviously need to change this before your benefits change and if it takes a while to come through you might be a bit stuck for a while.

Also if you can deal with a £400 drop in income and you rent I would suggest saving £400 to buy a house would provide more security.