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  • FIRST POST
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 8:39 AM
    • 481Posts
    • 46Thanks
    nxdmsandkaskdjaqd
    Paying £2880 into pension when retired
    • #1
    • 3rd Jan 17, 8:39 AM
    Paying £2880 into pension when retired 3rd Jan 17 at 8:39 AM
    Jamesd wrote in another thread the following:
    "She can make £720 a year tax free by paying 2880 net into a pension, having it grossed up to 3600 then withdrawing it. Can only do the withdrawing part from age 55. Can only pay in for this until age 75."

    I have just retired at 60 and have transferred my DC pension to a new SIPP. I plan to live off savings till state pension kicks in.

    I am correct that the above approach should be part of my strategy of being tax efficient?
    Last edited by nxdmsandkaskdjaqd; 03-01-2017 at 10:14 AM.
Page 22
  • jamesd
    Perhaps a shame that wormwood spirit was banned, but anise seems to be a profitable substitute. Seems like a good company.
    Last edited by jamesd; 29-08-2017 at 1:28 PM.
    • striker44
    • By striker44 18th Sep 17, 5:54 PM
    • 18 Posts
    • 1 Thanks
    striker44
    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
    • striker44
    • By striker44 18th Sep 17, 5:57 PM
    • 18 Posts
    • 1 Thanks
    striker44
    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
    • bigadaj
    • By bigadaj 18th Sep 17, 7:28 PM
    • 10,803 Posts
    • 7,100 Thanks
    bigadaj
    Yes, that should be fine.

    You just need to be careful with the provider you use and their charges for doing this.
    • cloud_dog
    • By cloud_dog 18th Sep 17, 9:17 PM
    • 3,309 Posts
    • 1,866 Thanks
    cloud_dog
    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
    Originally posted by striker44
    Assuming you have the unused allowance for this FY (17/18), then you can do it this FY. Depending on your provider it can take up to 6 weeks to add the £720.

    The only difference is that you would likely be taxed on this years withdrawal (if you were to do it) and you would have to claim the tax back form Mr Tax Man.

    But it would be an extra £720 so, probably well worth the little extra effort.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • zagfles
    • By zagfles 18th Sep 17, 10:01 PM
    • 12,495 Posts
    • 10,496 Thanks
    zagfles
    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
    Originally posted by striker44
    Only if you're under 75
    • striker44
    • By striker44 19th Sep 17, 10:40 AM
    • 18 Posts
    • 1 Thanks
    striker44
    many thanks for your quick and very helpful replies - yes 68 - so will do this this tax year as suggested then each year until 75

    Dave
    • where are we
    • By where are we 19th Sep 17, 10:58 PM
    • 166 Posts
    • 50 Thanks
    where are we
    The £12,500 "tax threshold" or personal allowance has only been promised by the tax year 2020 - 2021. The personal allowance for 2018 - 2019 will be announced shortly in the autumn statement and there presumably will be an increase from the present £11,500 allowance for 2017 - 2018. You will pay no tax if the sum of your state pension, employer pension and what you draw out of your pp in any tax year is less than your personal allowance for that tax year. Remember that 25% (£900) of any additional contributions (£3600) you make to your pp can be taken tax free. Depending on your circumstances you may want to maximise your tax free income each year by taking an amount that takes you almost up to your personal allowance.
    • tempus_fugit
    • By tempus_fugit 22nd Sep 17, 1:43 AM
    • 329 Posts
    • 311 Thanks
    tempus_fugit
    Hi, I've been reading through this thread again to reinforce my understanding of how the drawdown works, but I am still a little confused, apologies if I am raking over old ground.

    My query relates to the drawdown and taxation. I am retired with no taxable income so I have the full personal allowance to play with. I put £2,880 into an HL SIPP in July and have just received the tax relief top-up. I understand that I need to leave £1,000 in it for now to be on the safe side, and wish to withdraw £2,600 in one go but I'm not sure what, if any, tax will be deducted. Would it be:

    1) £900 tax free and £1,700 at 20% as they assume that I am a basic rate taxpayer; or

    2) £900 tax free, £1,700 taxed and then they assume that I will be taking £2,600 every month until the end of the tax year, ie £15,600 so I will also be taxed on that amount less the personal allowance (even though there would never be enough money in the account to pay that out) and then claim it back from HMRC?

    I guess the way to find out is to ask for the illustration and it will explain the ramifications of what I decide to do?
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
    • Dazed and confused
    • By Dazed and confused 22nd Sep 17, 6:16 AM
    • 1,979 Posts
    • 888 Thanks
    Dazed and confused
    Neither.

    If you are taking a TFLS this is ignored for tax purposes so you are taking taxable income of £1700 then the emergency tax code is normally used on your first payment and that would mean tax of about £148 would be deducted.

    This can be claimed back from HMRC in the circumstances you describe and a tax code should be issued to your pension provider for use on any further taxable income withdrawls.

    But are you sure you want to take TFLS in full on day one? I think you can take £2600 and split that 25% tax free (£650) and 75% taxable (£1950) which might give you more options longer term and although you'd pay a fraction more tax at the point of withdrawal (£50 more) that would all be repayable based on your op.
    • tempus_fugit
    • By tempus_fugit 22nd Sep 17, 4:04 PM
    • 329 Posts
    • 311 Thanks
    tempus_fugit
    Thanks for the info D&C, that is very clear and helpful. From what you say splitting the withdrawal between TFLS and taxable seems the sensible way to go, and I hadn't thought of that. Thanks very much.
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
    • missile
    • By missile 25th Sep 17, 10:49 PM
    • 9,025 Posts
    • 4,397 Thanks
    missile
    [QUOTE=tempus_fugit;73161946]I am retired with no taxable income so I have the full personal allowance to play with[QUOTE] Do you have state pension?

    I would suggest the easiest way for you is to withdraw £900 TFLS and the balance as 12 monthly payments.

    Please note: HL will level a charge if you close the account within 12 months.
    Last edited by missile; 25-09-2017 at 10:51 PM.
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
    Ride hard or stay home
    • tempus_fugit
    • By tempus_fugit 8th Oct 17, 2:14 PM
    • 329 Posts
    • 311 Thanks
    tempus_fugit
    Yes, I am aware of the early closure fee. I have done the £2600 withdrawal (with £198 tax as advised correctly by D&C) as I don't want to withdraw in 12 monthly payments.
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
    • bioboybill
    • By bioboybill 10th Nov 17, 2:33 PM
    • 2,919 Posts
    • 1,302 Thanks
    bioboybill
    Ok, just looking at this for my wife. She is 56 and took voluntary severance at the end of July. She worked part time on a salary of c.£12,600 and was already getting a pension of c. £9K/yr from a previous job. She is deferring payment of her Local Government pension. As she already earned c. £4,200 in the current tax year on top of her pension that clearly takes her over her current PA.


    She is looking at putting £2,880 into a SIPP and keeping as cash for the tax relief of £720 next tax year, but I was thinking it still might be worth doing it this year. I have seen worked examples showing it being only worth £180 to a BR tax payer if you deposit £2880, get the £720 and withdraw the lot and I understand how that works out. However, unless my maths is wrong can't you make £330 by withdrawing just £2600 the first year to comply with HL need to leave £1000 in? My maths is as follows:


    Deposit £2880, get top up of £720 a couple of months later. Leave £1000 in HL. Withdraw £2600. £650 is tax free and pay 20% tax on the remaining £1950 (£390 tax). That way you have still got £330 more than you started with.


    When the next tax year comes around pay £2880 in again, get £720, but this time withdraw £3600, leaving the original £1000 in. £900 is tax free and assuming PA has risen to £12000 the rest is also within the PA.


    Is my maths correct?
    • tempus_fugit
    • By tempus_fugit 10th Nov 17, 4:55 PM
    • 329 Posts
    • 311 Thanks
    tempus_fugit
    Yes but remember that 75% of the remaining £1000 that you left in in the first year (£750) is also taxable, ie £150 tax to pay. £330 - £150 = £180.
    Last edited by tempus_fugit; 10-11-2017 at 4:58 PM.
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
    • mark1959
    • By mark1959 10th Nov 17, 8:00 PM
    • 258 Posts
    • 271 Thanks
    mark1959
    If your wife is receiving circa £9k and only that next tax year the she can put £2880 in and draw circa £3000 out, tax free, subject to the pension providers rules. Her P.T.A. will be either £11500 or £12000 next tax year. No tax free pension this year tho, as she is already over the £11500 threshold.
    • pip895
    • By pip895 10th Nov 17, 8:30 PM
    • 445 Posts
    • 254 Thanks
    pip895
    I wonder how many more budgets this little scheme is going to last? I have been adding £2880 to my SIPP for the last 7 years just building up my SIPP in retirement - investing it not recycling.

    Its just I can't really see what up side there is for the government in leaving this open? - has there been any talk of closing the loop hole? How might they go about it? I'm hoping not by removing the £3600 yearly allowance. It would actually be really nice if it could go up a bit - as its been £3600 with no inflationary increase for a long time I think.
    • Alexland
    • By Alexland 10th Nov 17, 9:04 PM
    • 766 Posts
    • 473 Thanks
    Alexland
    It's not a loophole but a genuine attempt to help low/no earners save into a pension to improve their position in retirement. It doesn't cost much and it can really help people and reduce benefit dependacy.

    People that already have decent pensions get marginal benefit as they will pay tax on 75% on the way out.

    Alex
    • pip895
    • By pip895 10th Nov 17, 9:11 PM
    • 445 Posts
    • 254 Thanks
    pip895
    The loophole that allows you to withdraw the money straight away and then add it back in the next tax year though, doesn't seem to be encouraging saving in a pension. As a benefit its not too well targeted I would say.
    • bioboybill
    • By bioboybill 14th Nov 17, 8:25 AM
    • 2,919 Posts
    • 1,302 Thanks
    bioboybill
    If your wife is receiving circa £9k and only that next tax year the she can put £2880 in and draw circa £3000 out, tax free, subject to the pension providers rules. Her P.T.A. will be either £11500 or £12000 next tax year. No tax free pension this year tho, as she is already over the £11500 threshold.
    Originally posted by mark1959
    Yes, I understand she would pay tax on the £1950, but she would still get the first 25% (the £650) tax free wouldn't she?
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