Tax Loophole – A Scandal in the Future - Prestige Wealth Solutions


A tax loophole could mean that thousands of the lower earners are losing out when it comes to tax relief on pension contributions. This could apparently be the scandal of the future, according to a former pensions minister in the United Kingdom.

This isn't the first time that this issue has been flagged. This loophole is affecting many non-taxpayers who are saving for the future in certain pension plans. The issue is a result of the method in which pension schemes increase the pension savings of individuals.

Anyone who is contributing to a pension in the United Kingdom is entitled to a Government bonus. This includes non-taxpaying individuals. This bonus is paid out at a marginal rate of income tax as a tax relief for taxpayers. Those who do not pay tax as they earn below the taxable income per year are entitled to the bonus based on an overall cap. The minimum annual salary to quality for the bonus is £11,500 per annum.

For any non-taxpayer, they can pay into a pension scheme around £2,880 per annum, as a maximum payment. This would increase to £3,600 once tax relief is included. The problem is that there are thousands of pension schemes who use a different system, known as net pay are not able to include tax relief on non-earners.

The real concern comes into play that longer term savings program that have an automatic enrollment requires employers to pay into their employees pension schemes once the employer earns £10,000 per annum. But while the starting rate for income tax has risen, the automatic amount has remained the same since 2015. This means that anyone who earns more than this amount is losing out on valuable tax relief if they are paying into a net pay scheme where they cannot be given the benefits of these bonuses.

So many people won't even know that they aren't earning these bonuses because the employer pays into the scheme for them. Since the introduction of the program in 2012, over seven million people have been enrolled in this program, with a high majority being in the net pay schemes.


According to PWS Dubai, it is essential for anyone who is working and have been auto-enrolled into a pension scheme, must identify whether their employer has enrolled them in a net pay scheme.

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