Salary sacrifice to be taxed

[SomethingInTheAirToday]

https://x.com/politlcsuk/status/1986914552093745592?s=46

not only are my generation not going to have a state pension or private healthcare, but we also can’t save into our own pensions because we need to fund the current generation.

this makes me so angry

There are, basically, two ways to deduct pension at source by an employer.

1. employee nominates amount for pension, that is taken from their pay on pay day, their take home is reduced. It's taken before tax. Therefore, for a basic rate tax payer putting in £100 costs them £80. Employer pays, say, £60 and they pay no NI on that element so it doesn't cost them £60 as such.
   Employee contribution is £100, employer contribution is £60.
   This is what the majority of schemes do.
   
   It's a payroll deduction, but it's not salary sacrifice using the HMRC rules.

2. salary sacrifice. Your salary is £50k. You want to pay £2k pa into your pension. You enter into a different contractual arrangement with your employer whereby your employer reduces your salary to £48k, and you get a letter explaining that. It is a contractual change.
   Then, the employer makes a £2k pa contribution to your pension scheme. And adds their own contribution of £200.
   £2,200 is ALL an employer contribution . There is NO employee contribution.
   As a result of this, both parties now save the NI. The employer saves it on the full contribution instead of just their bit, and the employee saves it on what is just an employer contribution, increasing their take home pay by the NI element of the £2k. Both parties are better off.

I'm definitely not wrong. I have introduced these schemes to employers.

I can appreciate that people use the term incorrectly though.

Where you say "all relevant taxes", you're simply using irrelevant words. It's tax. Tax is saved. Unless you use sal sac, then NI is saved as well.

But there are a lot of other rules around sal sac and the admin burden for the employer is a lot higher.

So, what RR is suggesting, is limiting the NI saving in my 2) to the first £2k pa. Which, to be quite honest, won't impact that many people.

But I suspect the reason she is considering it is because more employers are thinking that the admin burden of sal sac is more worth it with the recent NI increase.

All this information is available on the internet. Especially the HMRC website.

And there are plenty of other posts on this thread that have explained it. So maybe read all that before making a tit of yourself.

Maybe it’s because we have a benefits pot that is drawn down from rather than the basic salary. For me I nominate an amount and my gross salary is adjusted.

It’s 100% salary sacrifice and changes will directly impact net pay. HR and work have spent days modelling changes to staff pay!

It's a silly argument. That money ends up getting taxed when you take it out of your pension pot - it's not tax avoidance! So the change here would just remove an incentive to save up for private pensions, leaving more people with little savings down the line. Honestly I've had it with Reeves.

Yeah the only way it’ll work is if they stop taxing pensioners.

I can just imagine all the greedy gits rubbing their hands in delight.

🙄 oh dear, not had your meds yet?

You can’t double tax it - that would lead to revolt.

im fed up of the pensioners dictating how the country is run, leaving the rest of us to slave away for absolutely no reason.

The incentive being that you pay less tax FFS

Err its the rightwing media every time, coming up with scary tax rise stories.....

Politics UK is owned by a Conservative party member and donor.... oh what a surprise.

No the incentive being that the tax is delayed.

I think this is a bad policy. But it is not going to result in double tax because the policy is around NI, which pensioners do not pay.

You can strike through your swearing, but I can still read it!
Private pension is taxed like any other income when you take it out and as far as I know, it's taxed according to the same thresholds applicable to income tax. There is ZERO tax avoidance here. The ONLY advantage that Reeves would kill off if she went ahead would be for employers who can indeed save some NI by supporting their employees by matching their contributions. For the individuals, like I said, the revenue is then taxed when they use it. For the employers, saving on NI is the only reason they would take part in that scheme. So what do you think will happen? Private pension savings will basically dramatically decrease because companies will stop offering their employees that benefit.

If you not a feckless layabout you're going to be paying more tax after the budget. I'm just going to suck it up as the price to pay to get a Reform majority at the next election. Labour have taken a inherited blackhole and multiplied it with Reeves financial incompetence

They have already massively damaged employment with their jobs tax, now they want a pension tax to stop us saving. They really won't be happy until we are all at home on the dole.

and how does 78 year old Mabel down the road at no 15, who only gets the standard state pension, dictating how the country is run……😂😂😂
slaving for no reason?……er, just paying your way….like millions of others including pensioners in their working lives.

Yet I won’t get a state pension. I don’t get a functioning NHS, nor a functioning education system. I’m paying for pensioners to live lives of luxury while the rest of us suffer.

Yours may indeed be salary sacrifice, but what you described (and confidently stated I was wrong about) was not.

Apology accepted.

Your net pay, if this comes in, may go down by about £10-20pm.

Not sure why your HR are spending their time "modeling" this when it's not yet announced properly and it's simple maths anyway. But, useful reassurance that most HR teams are an unnecessary expense. Oh, I work in HR, have done for thirty years.

Employees save NI in this type of scheme too.

I don't think employers will stop pensions, partly because they can't anyway, but the £2,000 exemption point still makes it worth it. That's £300 per employee pa saved.

Oh, and pension isn't taxed the same as other income. 25% is tax free, then it's taxed the same.

Also, if you're a higher rate tax payer when paying in but basic rate when drawing, you obviously gain there as well (but are probably living on less, of course).

If you draw a lump sum. Not if you receive income.

£20pm could be deal breaking for many people.

There is already double taxation.

• For example Inheritance tax which is a tax on the value of a deceased person's estate, the assets of which were likely already subject to income tax during their life.

For most other areas of double taxation there are relief mechanisms but these do not always give 100% relief

I wasn’t aware any Government has announced there won’t be state pensions in the future
Do you have proof of that ?

That isn’t double taxation anymore than paying for something that includes VAT is double taxation because you already paid income tax on the money.

If you paid income tax on pension contributions and then income tax again on those contributions when you got the pension, that would be double taxation. It would be being treated as your income twice.

Inheritance tax is classified as a double taxation
VAT on goods are not classified as such

( Not necessarily on all of the estate )

I inherited, i didn't earn any of that money, let alone help cause house price inflation.

I was basically free money, it was below the TH but i had to have paid tax on it, thats only fair.

However, i do think IHT should be at your personal tax rate, not a blanket 40% and there should also be a much longer period to settle the bill when a property has to be sold.

Currently IHT is a tax on the estate. Not the inheritor

I Agree Hmrc should give more time to pay it and wait till assets are sold and sitting in a probate account ( assuming proof of ongoing sale is given )