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Old 06.07.2021, 10:02
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tax benefit of extra pension contributions

I have looked but can't find a 'calculator' that would show me how much my tax would reduce if I made an overpayment into my company pension ( a voluntary additional contribution).

I have the vague idea that if I put in, say, 25k then that amount simply comes off my gross salary for the year when my tax bill is calculated.

Is it that simple ?

Also, assuming tax rates are applied to income 'bands' it would make sense to put in just enough to get me into a lower band but wouldn't make sense to put in more. Is that true and if so how do I work out how much to put in (for Basel Land)?
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Old 06.07.2021, 10:22
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Re: tax benefit of extra pension contributions

Ah.. based on this

https://www.baselland.ch/politik-und...1130_200212.pd

The bands only move in 5k increments and only by a small %change in tax rate

And I've answered my own question after a bit of spreadsheeting.

(purely hypothetical numbers .. if salary is 150k then tax bill is 20k, if pay in 50k then salary is 100k and tax bill is 11k .. so for 50k 'in' you get 9k 'back' or roughly 20%)
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Old 06.07.2021, 10:28
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Re: tax benefit of extra pension contributions

in kanton Zurich it is indeed that simple: the amount paid in the 2nd Pillar can be fully deducted.
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Old 06.07.2021, 11:03
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Re: tax benefit of extra pension contributions

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in kanton Zurich it is indeed that simple: the amount paid in the 2nd Pillar can be fully deducted.
But you are not avoiding tax, only deferring it.
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Old 06.07.2021, 11:38
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Re: tax benefit of extra pension contributions

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But you are not avoiding tax, only deferring it.
Yes and no. Deferring (to me) implies that the same tax will have to be paid at a later date.

In the case of a pension, when you take the money out your tax situation is likely to be significantly different, and also the tax for lump sum withdrawal is lower compared to standard income tax.
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Old 06.07.2021, 11:56
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Re: tax benefit of extra pension contributions

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Yes and no. Deferring (to me) implies that the same tax will have to be paid at a later date.

In the case of a pension, when you take the money out your tax situation is likely to be significantly different, and also the tax for lump sum withdrawal is lower compared to standard income tax.
Of course this also depends on the Canton of residence.
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Old 06.07.2021, 12:00
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Re: tax benefit of extra pension contributions

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But you are not avoiding tax, only deferring it.
and the system is set up with people in mind who contribute in Switzerland but will also retire in Switzerland.

If that is not your case, that is, if you are not planning to retire here, the money might well be taxable in your country of retirement at a higher rate than you are saving here . So think carefully and do your homework and also consider tax systems can change.
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Old 06.07.2021, 13:37
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Re: tax benefit of extra pension contributions

A general watchout : do not be misled by the statement "you can withdraw 2 and 3 pillar after you leave CH permanently and pay Witholding tax in CH at a reduced rate"

Above is true but only half the story. For most countries the payout is taxable in the destination country which can often result in a higher tax rate being paid than was originally "saved" in CH. The rules per country are determined by bilateral Dual Tax Agreements between CH and respective country which are published on CH federal website. There is no common "EU" agreeement.

Notable exception is when leaving to UK. UK-CH DTA says payout is not taxable in UK. So should only have to pay WHT at source in CH

Another exception is Portugal, DTA says payout is taxable in PT but from what I read PT apply a low rate, 10%, and it is then possible to reclaim / claim credit for WHT deducted in CH
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Old 06.07.2021, 14:25
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Re: tax benefit of extra pension contributions

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Notable exception is when leaving to UK. UK-CH DTA says payout is not taxable in UK. So should only have to pay WHT at source in CH
Really ? So if I decide to take my entire company pension out as a lump sum and I transfer that, largish, amount of cash to some applicable account in the UK and then leave CH and go to live in the UK.. I am not liable for any capital gains or any similar tax in the UK ? Can you point to the relevant web site please ?

(and what is 'WHT' ?)
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Old 06.07.2021, 14:27
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Re: tax benefit of extra pension contributions

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(and what is 'WHT' ?)

Withholding tax
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Old 06.07.2021, 15:04
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Re: tax benefit of extra pension contributions

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Ah.. based on this

https://www.baselland.ch/politik-und...1130_200212.pd

The bands only move in 5k increments and only by a small %change in tax rate

And I've answered my own question after a bit of spreadsheeting.

(purely hypothetical numbers .. if salary is 150k then tax bill is 20k, if pay in 50k then salary is 100k and tax bill is 11k .. so for 50k 'in' you get 9k 'back' or roughly 20%)
My philosophy is a bird in the hand is worth two in the bush. You need to compare any potential saving from postponing any tax that you will pay vs the opportunity cost of investing the cash now. The difference is likely to be significant if you invest in equities for the long term. Another point to add is that the interests of the 2nd pillar fund managers do not fully align with your own, irrespective of your age. Some food for thought.
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Old 06.07.2021, 15:43
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Re: tax benefit of extra pension contributions

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Another exception is Portugal, DTA says payout is taxable in PT but from what I read PT apply a low rate, 10%, and it is then possible to reclaim / claim credit for WHT deducted in CH
do you have a link for that? I could not find a reliable source
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Old 06.07.2021, 16:19
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Re: tax benefit of extra pension contributions

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Really ? So if I decide to take my entire company pension out as a lump sum and I transfer that, largish, amount of cash to some applicable account in the UK and then leave CH and go to live in the UK.. I am not liable for any capital gains or any similar tax in the UK ? Can you point to the relevant web site please ?

(and what is 'WHT' ?)
https://assets.publishing.service.go...s_in_force.pdf
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Old 06.07.2021, 16:55
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Re: tax benefit of extra pension contributions

per the link from Artax

UK CH DTA Article 18

"Notwithstanding the provisions of paragraph 1, a lump sum payment derived
from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State. "

There is also a thread on English Forum where a contributor confirmed the approach with HMRC. Perhaps someone can find the link and share it
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Old 06.07.2021, 17:12
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Re: tax benefit of extra pension contributions

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Really ? So if I decide to take my entire company pension out as a lump sum and I transfer that, largish, amount of cash to some applicable account in the UK and then leave CH and go to live in the UK.. I am not liable for any capital gains or any similar tax in the UK ? Can you point to the relevant web site please ?

(and what is 'WHT' ?)
Yes, that's correct and it works the other way round also. I took a lump sum that I had left in the UK and it was taxed in the UK and not in Switzerland. It is taxed in the country in which it has been generated.

https://www.gov.uk/government/public...d-tax-treaties
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Old 06.07.2021, 18:11
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Re: tax benefit of extra pension contributions

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My philosophy is a bird in the hand is worth two in the bush. You need to compare any potential saving from postponing any tax that you will pay vs the opportunity cost of investing the cash now. The difference is likely to be significant if you invest in equities for the long term. Another point to add is that the interests of the 2nd pillar fund managers do not fully align with your own, irrespective of your age. Some food for thought.
Fair point but.. depends on your age. The closer you are to retirement the more attractive it is to bump your pension pot and take a tax break. If you are a long way from retirement then I'd agree that long term investing makes more sense
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Old 06.07.2021, 18:20
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Re: tax benefit of extra pension contributions

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per the link from Artax

UK CH DTA Article 18

"Notwithstanding the provisions of paragraph 1, a lump sum payment derived
from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State. "

There is also a thread on English Forum where a contributor confirmed the approach with HMRC. Perhaps someone can find the link and share it
One thing that is interesting (and shows how convoluted hmrc’s rule book is) is that Swiss pension schemes aren’t even recognized as QROPS now by hmrc so there is no notification requirement when a crystallization event occurs.

The “spirit” of the rules about pension busting was to stop people transferring a uk pension to a foreign firm and then cash it out.
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Old 06.07.2021, 19:29
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Re: tax benefit of extra pension contributions

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do you have a link for that? I could not find a reliable source
Clarification: the 10% tax rate on foreign source pensions in Portugal only applies if you have "non-habitual resident" status - see below from KPMG

https://home.kpmg/xx/en/home/insight...-2020-192.html

There are quite a few resources on the internet about how to become a "non-habitual resident" in Portugal
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