Saving.. Pension...portfolio.. bond?

jem16

joerugby wrote: »

I'm afraid I don't understand this point. A wife's lack of income has no bearing on whether tax free cash can be taken from a husband's pension on retirement.

Dunstonh was referring to moving the 25% tax free lump sum from the husband and putting it into a pension for the wife at that point. Doing this would see very little benefit tax-wise as you would only be able to claim tax relief on £3600.


Perhaps you simply meant take the 25% lump sum and simply put it into a savings account in the wife's name thus saving some tax on the interest earned?

The main idea is to use each person's personal tax-free allowance of approximately £10k. If all the pension income is in the husband's name he will pay more tax.

joerugby

jem16 wrote: »

Dunstonh was referring to moving the 25% tax free lump sum from the husband and putting it into a pension for the wife at that point. Doing this would see very little benefit tax-wise as you would only be able to claim tax relief on £3600.


Perhaps you simply meant take the 25% lump sum and simply put it into a savings account in the wife's name thus saving some tax on the interest earned?

The main idea is to use each person's personal tax-free allowance of approximately £10k. If all the pension income is in the husband's name he will pay more tax.

Thank you, that's exactly what I meant (doesn't have to be a savings account of course, could be another type of investment). That way there is 40% tax relief on the husband's contributions and no tax payable on the wife's eventual income. The calculations are a little complex but this might well be the best solution.

jem16

joerugby wrote: »

The calculations are a little complex but this might well be the best solution.

I'm not so sure that would be the best solution.

Whether the wife gets 20% tax relief for herself or the husband gets the extra 20% tax relief basically leaves 20% difference .

However at the time of taking the retirement benefits, both the husband and wife can have 25% tax-free cash as opposed to just the husband so that's one advantage.

The 2nd advantage lies in reducing the husband's tax liability whilst not increasing the wife's. If the husband had £20k pension income all to himself he would have to pay £2000 tax. If he and his wife had £10k each no tax would be paid so an immediate £2000 tax saving.

Also if the husband were to cross over the £22,900 age related allowance he would start to lose £1 of his higher personal allowance for every £2 over the limit - a marginal tax rate of 31% so even more tax would have to be paid. Having an income of just under £29k means the husband would lose all of the higher personal allowance and would only have £6475 instead of £9490.

Have you taken all of that into account?

joerugby

jem16 wrote: »

I'm not so sure that would be the best solution.

Whether the wife gets 20% tax relief for herself or the husband gets the extra 20% tax relief basically leaves 20% difference .

However at the time of taking the retirement benefits, both the husband and wife can have 25% tax-free cash as opposed to just the husband so that's one advantage.

The 2nd advantage lies in reducing the husband's tax liability whilst not increasing the wife's. If the husband had £20k pension income all to himself he would have to pay £2000 tax. If he and his wife had £10k each no tax would be paid so an immediate £2000 tax saving.

Also if the husband were to cross over the £22,900 age related allowance he would start to lose £1 of his higher personal allowance for every £2 over the limit - a marginal tax rate of 31% so even more tax would have to be paid. Having an income of just under £29k means the husband would lose all of the higher personal allowance and would only have £6475 instead of £9490.

Have you taken all of that into account?

Jem, I'm aware of the tax rules relating to pension contributions, tax free cash, age allowance, income limit etc etc but as you know we don't have the detail needed to evaluate this fully taking all of this into account. So we can't say definitively whether the advice is good or not.

I've simply offered an alternative approach which may (or may not) turn out to be be beneficial.