Paying £2880 into pension when retired

MyOnlyPost · 17 February 2017 at 11:24PM

If Taxable income totals less than £17,000 then you don't pay tax on savings interest so the whole £1,200 savings interest should be tax free and your leftover allowance £200 higher at £2,760 if I understand it correctly. This should bring your wife in just under the threshold I think

https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

moneyfoolish · 18 February 2017 at 1:40AM

MyOnlyPost wrote: »

If Taxable income totals less than £17,000 then you don't pay tax on savings interest so the whole £1,200 savings interest should be tax free and your leftover allowance £200 higher at £2,760 if I understand it correctly. This should bring your wife in just under the threshold I think

https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

Thanks. I think!

bikeman · 18 February 2017 at 2:25PM

I expect this has already been said but this is called recycling and there are rules to prevent you making pension contributions just to get at the tax free cash.

This provides a useful explanation
http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

Be careful of the 30% rule when increasing contributions to a pension within 5 years of taking tax free cash.

jamesd · 19 February 2017 at 7:05AM

There is no five year rule within five years of taking the cash. It's the two tax years before, the tax year it's taken and the two following tax years. The summary I provide here is probably easier to understand when it comes to working out what you can do. It's mostly irrelevant for those putting in and taking out £3,600 because up to £7,500 tax free lump sum per rolling twelve month period (not tax year) is fine and there's no need to even think about the more permissive limits.

Dazed_and_confused · 19 February 2017 at 11:04AM

moneyfoolish

moneyfoolish

We have already switched the maximum marriage allowance from my wife to me which leaves her with a total allowance of £10,900 (£11,000 Personal Allowance - £1,100 transferred to me plus £1,000 Personal Savings Allowance). Her State Pension is approx £7,140 plus she has income interest of approx £1,200 i.e. £8,340 total income. This leave a total tax free amount of approx £2560. I assume that means in addition to the tax free 25% of £3600 i.e. £900 that means she could withdraw another £2560 tax free but anything over that would make her a standard rate taxpayer?

You seem to have a couple of misapprehensions in there.

There is no "maximum" marriage allowance transfer, your wife could apply to transfer 10% of the standard personal allowance but there is no other option available, it's the 10% or nothing.

Also, from the figures you quote she will not benefit from the personal savings allowance and definitely does not have allowances of £10900.

All interest (ignoring normal tax free ISA's etc) is still taxable it's just that some of it may now be taxed at 0%, commonly known as the personal savings allowance, however the benefit of this only kicks in after the existing savings rate band (if relevant) is exhausted so on total income of £8k she won't benefit from the PSA as all the income is covered by her remaining £9900 personal allowance.

If you add-in £2560 extra pension income she would have £9700 pension income still covered by the standard personal allowance but still won't benefit from the PSA, the £1200 interest would be taxed under the savings rate band (currently 0%).

moneyfoolish · 20 February 2017 at 12:32AM

Dazed_and_confused wrote: »

moneyfoolish

moneyfoolish

We have already switched the maximum marriage allowance from my wife to me which leaves her with a total allowance of £10,900 (£11,000 Personal Allowance - £1,100 transferred to me plus £1,000 Personal Savings Allowance). Her State Pension is approx £7,140 plus she has income interest of approx £1,200 i.e. £8,340 total income. This leave a total tax free amount of approx £2560. I assume that means in addition to the tax free 25% of £3600 i.e. £900 that means she could withdraw another £2560 tax free but anything over that would make her a standard rate taxpayer?

You seem to have a couple of misapprehensions in there.

There is no "maximum" marriage allowance transfer, your wife could apply to transfer 10% of the standard personal allowance but there is no other option available, it's the 10% or nothing.

Also, from the figures you quote she will not benefit from the personal savings allowance and definitely does not have allowances of £10900.

All interest (ignoring normal tax free ISA's etc) is still taxable it's just that some of it may now be taxed at 0%, commonly known as the personal savings allowance, however the benefit of this only kicks in after the existing savings rate band (if relevant) is exhausted so on total income of £8k she won't benefit from the PSA as all the income is covered by her remaining £9900 personal allowance.

If you add-in £2560 extra pension income she would have £9700 pension income still covered by the standard personal allowance but still won't benefit from the PSA, the £1200 interest would be taxed under the savings rate band (currently 0%).

Thanks. To boil it down the the lowest level, I'm trying to find out if with a State Pension of £7140 and Savings Interest of £1200 if, each year until she reaches 75, my wife will be able to put in £2880 into a SIPP and take out £3600 without paying any tax?

bigadaj · 20 February 2017 at 8:58AM

moneyfoolish wrote: »

Thanks. To boil it down the the lowest level, I'm trying to find out if with a State Pension of £7140 and Savings Interest of £1200 if, each year until she reaches 75, my wife will be able to put in £2880 into a SIPP and take out £3600 without paying any tax?

Yes, assuming the government doesn't change the rules, which is certainly not impossible.

moneyfoolish · 20 February 2017 at 10:16AM

bigadaj wrote: »

Yes, assuming the government doesn't change the rules, which is certainly not impossible.

Thanks. As you say, there's always the possibility they could change the rules but if this is done on a year-by-year basis with these relatively low amounts there's not much to lose.

moneyfoolish · 20 February 2017 at 10:30AM

Hopefully, my last question on this topic for people who have already been through this process! It was implied in some earlier posts that after the £2880 is paid in and the £720 is then added, that the 25% i.e. £900 can then be taken immediately completely free of tax. Is this true or is it only 25% of any amount that is taken that is given without tax being withheld whereas the rest is taxed. The purpose of this question is because I would want to avoid any money being taxed on an emergency code as I would rather wait until the tax office had passed by wife's tax code to HL which it seems would only happen after she withdrew some money.

jamesd · 20 February 2017 at 11:02AM

25% of the current value of the pot can be taken tax free. It's likely to take a couple of months for the tax relief to arrive and when it does 25% of that can be taken tax free as well.

If using HL it's neater to ask them to pay regular monthly income and that will get the tax back. You could start the income at £10 a month until HMRC issues a tax code to them, then increase it after she's told them about her expected annual income and they have issued a new code.

Paying £2880 into pension when retired

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