Key answers on pilot trusts and salary sacrifice
Q I have a number of clients who have set up ‘pilot trusts’ with a nominal amount to receive pension death benefits. Most of these clients are still alive and, as such, nothing has been paid into the trust aside from the nominal amount. Do these trusts have to be registered on HM Revenue & Customs’ Trust Registration Service?
A Under the Trust Registration Service, pilot trusts that were created before 6 October 2020, where the value of the property held within the trust does not exceed £100, will not need to be registered. However, if further funds have been added to the trust so that the trust fund exceeds £100, the trust will have to be registered.
Under the current rules, any ‘new’ pilot trust created on or after 6 October 2020 will have to be registered by 1 September 2022, or within 90 days of the date of its creation if later, even if the trust has since been closed – ie the trust assets have been distributed to a beneficiary.
Q My client started working for a new employer two years ago and makes pension contributions via salary sacrifice. I want to check how these are included for the purposes of calculating the threshold income and adjusted income. Their salary is £190,000 with bonus and other taxable income of £40,000. The total contribution into the scheme is £25,000 (£15,000 employer and £10,000 employee).
A The first thing to establish is whether the salary they have provided is a pre- or post-sacrifice figure. The salary sacrifice amount needs to be included in both threshold and adjusted income figures, but you need to be careful to avoid double counting it. If the salary is pre-sacrifice, you need to deduct the amount given up, to work out the taxable salary. If it is the post-sacrifice salary, then that is the correct starting point. You then add in all of the client’s other taxable income to get to their net income.
For threshold income, you then need to add back in the amount sacrificed by the client to the net income figure. So, assuming the salary is post-sacrifice, this would be £240,000.
For adjusted income, you need to add back the total contribution. Technically, the full £25,000 is an employer contribution and all employer contributions are included in adjusted income. Therefore, again assuming this is the post-sacrifice figure, the adjusted income would be £255,000. The client would be subject to tapering, but the contributions are within the tapered annual allowance.
Taken from the Technical Connection Techlink Professional question bank. To find out more, visit: www.techlink.co.uk/techwise