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Salary sacrifice and what your employees should look out for.
16th March 2016
Jonathan Watts-Lay, Director, WEALTH at work, comments in the Financial Times on salary sacrifice and the lifetime allowance limit.
The article discusses how many employers use tax savings to pay for the administration of schemes or distribute them into other employee benefits. Some pass on the benefits to employees in full, therefore topping up the value of benefits given under salary sacrifice. Watts-Lay comments; “Bigger companies are more likely to give NICs (National Insurance Contributions) savings back to their employees. Salary sacrifice is at its most advantageous where a taxpayer is just above one of the number of fault lines in the tax regime, where extra earnings result in the removal of a valuable tax relief or benefit.”
The article goes on to discuss the reduction of the lifetime allowance (LTA). On the 6th April 2015, the LTA reduced from £1.25 million to £1million. Watts-Lay believes reaching the limit could be closer than employees think; “£1m might sound like a lot of money, but you’d be amazed the numbers who are going to be affected by this. A lot of savers need to weigh up whether it is worth the risk of hitting that 55% rate by putting more into their pensions.”
Watts-Lay continues; “It’s a judgment call whether to accept 40% or 45% income tax versus risking a possible 55% in the end. With ISA limits raising to £20,000 a year from April 2017, up from £15,240, more can be saved or invested with tax-free returns.”
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