Early Retirement & Savings Tax

valio247

I am planning on retiring from full time employment within the next 6 months. Currently I am 55 years old and although I am aware I can apply, I will not be claiming taking my employees pension until I am 60 years old.

I can afford to live quite comfortably on savings/investments I have accumulated during my working life until I take my pension and do not intent to claim any type of benefit. I also do not intend to do any work either part or full time therefore my income will be zero, although my wife will carry on working and earns approx £17000 per annum (no joint accounts).

Under these circumstances am I entitled to complete a Form R85 to apply for claiming gross tax refund on my savings.

Would also appreciate any advice and other 'top tips' from anyone who has taken similar steps - many thanks.

Loughton_Monkey

Yes, the R85 will work. But if your wife has any non-ISA savings, you should consider transferring them into your name so that interest will also be tax free.

I did exactly the same as you. But I had a small pension that paid slightly below my tax free limit, and so I took that immediately. It was therefore tax free for almost 5 years.

Also, I salted away (and continue to do so) my 'limit' of £2,880 net into a pension [it immediately gets invested as £3,600]. This is no different from a S&S ISA other than because of the tax free lump sum, you get another 6.25% [25% of 25%]. As luck would have it, the new flexible drawdown rules have intervened meaning that I can take the whole lot out at any time I choose - because I now have £20K secured pension income - with only a practical limitation of doing it at a rate that avoids higher rate tax.

Depending upon your earnings in your last tax year at work, you may wish to calculate the maximum amount that you can put into a pension (perhaps the same new one you could contribute the £2,880 to). If any of your earnings are at 40% tax then this would be a 'must'.

le_loup

Don't forget, if your investment/savings exceed your personal allowance, tax will be due.

Jackonary

Loughton_Monkey wrote: »

Yes, the R85 will work. But if your wife has any non-ISA savings, you should consider transferring them into your name so that interest will also be tax free.

I did exactly the same as you. But I had a small pension that paid slightly below my tax free limit, and so I took that immediately. It was therefore tax free for almost 5 years.

Also, I salted away (and continue to do so) my 'limit' of £2,880 net into a pension [it immediately gets invested as £3,600]. This is no different from a S&S ISA other than because of the tax free lump sum, you get another 6.25% [25% of 25%]. As luck would have it, the new flexible drawdown rules have intervened meaning that I can take the whole lot out at any time I choose - because I now have £20K secured pension income - with only a practical limitation of doing it at a rate that avoids higher rate tax.

Depending upon your earnings in your last tax year at work, you may wish to calculate the maximum amount that you can put into a pension (perhaps the same new one you could contribute the £2,880 to). If any of your earnings are at 40% tax then this would be a 'must'.

Hi Loughton Monkey

I do not understand the bit about the pension. Can you help me please? I am not finance savvy, sorry!

I took VR recently, and am doing very little odd day temp work. Is the pension that you mentioned and the R85 something I need to consider as well?

I do have a FS pension that I will not be claiming until 60, which is in 4 years' time.

Jackonary

Loughton_Monkey wrote: »

Yes, the R85 will work. But if your wife has any non-ISA savings, you should consider transferring them into your name so that interest will also be tax free.

I did exactly the same as you. But I had a small pension that paid slightly below my tax free limit, and so I took that immediately. It was therefore tax free for almost 5 years.

Also, I salted away (and continue to do so) my 'limit' of £2,880 net into a pension [it immediately gets invested as £3,600]. This is no different from a S&S ISA other than because of the tax free lump sum, you get another 6.25% [25% of 25%]. As luck would have it, the new flexible drawdown rules have intervened meaning that I can take the whole lot out at any time I choose - because I now have £20K secured pension income - with only a practical limitation of doing it at a rate that avoids higher rate tax.

Depending upon your earnings in your last tax year at work, you may wish to calculate the maximum amount that you can put into a pension (perhaps the same new one you could contribute the £2,880 to). If any of your earnings are at 40% tax then this would be a 'must'.

Sorry...forgot to say thank you in previous post. Thank you.

Jackonary

Johnny_Doe

le_loup wrote: »

Don't forget, if your investment/savings exceed your personal allowance, tax will be due.

So if the interest you earn on your savings goes above £7475 you pay tax on anything above, Is that right?

eg 200 k savings

4% interest = £8000

Pay tax on £8000-£7475 = £525 at 20% = £105 tax to pay

Thanks

PS just read above post, so if you take a small pension this goes towards the personal allowance also i assume?

jem16

Johnny_Doe wrote: »

So if the interest you earn on your savings goes above £7475 you pay tax on anything above, Is that right?

Yes

eg 200 k savings

4% interest = £8000

Pay tax on £8000-£7475 = £525 at 20% = £105 tax to pay

Not quite. There is a 10% band for savings income.

So it would be £525 at 10% - £52.50

PS just read above post, so if you take a small pension this goes towards the personal allowance also i assume?

Yes it would.

Loughton_Monkey

Jackonary wrote: »

Hi Loughton Monkey

I do not understand the bit about the pension. Can you help me please? I am not finance savvy, sorry!

I took VR recently, and am doing very little odd day temp work. Is the pension that you mentioned and the R85 something I need to consider as well?

I do have a FS pension that I will not be claiming until 60, which is in 4 years' time.

Your original post talked about retiring from full time employment, so I assumed you were earning plenty of money this tax year. If that had been the case, I was advocatiing that you 'leverage' your final tax year's income by putting virtually all of it into a pension to get the maximum tax relief.

You can still do that to the extent you are earning, but at the very least, contributing the minimum £2,880 - which everyone is entitled to do - can make good sense. It makes sense if you are reasonably 'cash rich' and are looking to maximise the return on your cash for retirement income.

R85's are nothing to do with pension. It is a form that non taxpayer's use simply to instruct the bank/building society to pay interest gross of tax. It saves you haveing to pay tax and reclaim it back at the end of the tax year.

bigfreddiel

Jackonary wrote: »

Hi Loughton Monkey

I do not understand the bit about the pension. Can you help me please? I am not finance savvy, sorry!

Its an IVPP - Immediate Vesting Personal Pension and this link will tell you more:

https://www.adviserzone.com/adviser/public/adviserzone/propositions/individual/annuities/ivppp

Cheers fj

Jackonary

Many thanks Loughton Monkey and bigfreddiel for both your helpful explanations.

Jackonary