Wife's Pension

MoneyGeoff

Hi,

I have a company pension and am a high rate tax payer. Let's assume that by the time I retire, and after taking 25% lump sum, the pension it provides will be subject to 40% tax.

My wife has no pension at all and only a couple of years NICs.

Is it possible for me to make tax free payments into a pension for my wife? Eg is she had a sipp which I contributed to, could I get tax relief on contributions?

Given the name "Self-invested personal pension", I guess the answer is no?

Thanks

jem16

MoneyGeoff wrote: »

Is it possible for me to make tax free payments into a pension for my wife? Eg is she had a sipp which I contributed to, could I get tax relief on contributions?

Given the name "Self-invested personal pension", I guess the answer is no?

Thanks

Technically the answer is no. However your wife can indeed open a pension and pay into it using money which you have given her. It will be at her rate of tax relief though and not yours.

MoneyGeoff

What about this article, it seems to suggest that it is possible:

thisismoney.co.uk/money/experts/article-1687194/How-best-to-build-a-pension-for-my-wife.html

TLDR Version:

You can actually contribute £2,880 into a pension for your wife every tax year, potentially until age 75. The tax relief boosts your payment to the maximum of £3,600 by the Government.

This income is taxable. However if your wife's total income is less than £9,490 at age 65 (based on current rates) there is no income tax to pay.

Frogfish

If you mean can you claim tax relief for her at your 40% rate, then no.

But even non-tax-payers can make gross contributions of up to £3,600.00, so you can pay a contribution on her behalf into a pension in her name.

I would bear in mind if you are talking about SIPPs they tend to be aimed more at those with larger pension funds, so it would be worth taking some advice here.

MoneyGeoff

OK Thanks. Is there any point in me paying NICs for her instead then? If I understand correctly she will get 60% of my state pension anyway so probably not worth trying to catch up her NIC years?

atush

If she could somehow become 'self employed', the NICs would be lower and worth it. In any case, she may have more NICs than you think (3 for ages 16-18 and child resposiblity allowance if you have children).

I would open a PP for her, and maybe transfer to a Sipp once you have built it up for 3/4 years.

margaretclare

MoneyGeoff wrote: »

OK Thanks. Is there any point in me paying NICs for her instead then? If I understand correctly she will get 60% of my state pension anyway so probably not worth trying to catch up her NIC years?

I don't understand this line of reasoning. It's always 'worth it' for a woman to have money of her own. That's why, since 1978 IIRC, a woman has been credited with her contributions if she stays at home to look after children.

MoneyGeoff

margaretclare wrote: »

It's always 'worth it' for a woman to have money of her own.

We have one bank account and one credit card account between us. There is no concept of my money and my wife's money. I would need to make 18 years worth of contributions just to get up to a 60% state pension - which is what she will receive anyway. It would be completely throwing money away to do that if my understanding is correct. Whether there are 2 pensions or 1, they will all go into the same bank account. It doesn't make it any more or less her money or mine.

To clarify, I'm not looking for a way to provide for my wife in retirement. We will both be provided for by my pension. Some time ago I doubled my pension contributions to ensure it will cover for the two of us.

The result of this is that it will be taxed at 40%. Two 30K pensions would be better than one 60K pension from a tax point of view. So the reason for my post is to enquire if there's a way of splitting my contributions into 2 pensions AND saving money in the process.

I don't intend to change things just for the sake of it. If the increased payments into my own company pension is the best way of doing it then that's fine.

jem16

MoneyGeoff wrote: »

We have one bank account and one credit card account between us. There is no concept of my money and my wife's money. I would need to make 18 years worth of contributions just to get up to a 60% state pension - which is what she will receive anyway. It would be completely throwing money away to do that if my understanding is correct. Whether there are 2 pensions or 1, they will all go into the same bank account. It doesn't make it any more or less her money or mine.

No you are correct. There is no point in paying 18 years worth of contributions for something she is entitled to through yours anyway. Your wife will be paid her own pension based on your contributions.

Have you had a state pension forecast for your wife? Worth doing in case she is entitled to any HRP if she was at home looking after children.

The result of this is that it will be taxed at 40%. Two 30K pensions would be better than one 60K pension from a tax point of view. So the reason for my post is to enquire if there's a way of splitting my contributions into 2 pensions AND saving money in the process.

The only thing you can do if your wife is a non taxpayer is to at least pay £3600 gross into a pension in her own name. That will reduce some of the tax.

Apart from that if you are getting 40% tax relief only to pay 40% tax on the pension, you might want to consider using your S&S ISA allowance. No tax relief but as it's tax free to take perhaps it will reduce your overall tax bill if it keeps the pension income below higher rate tax.

MoneyGeoff

OK thank you. The NICs is a non starter, the full time carer or raising children allowances do not apply, she has 2 or 3 years NICs.

I'll look into ISAs, that may be better than continuing to pay 10% into the company pension (ie just pay the 5% that the company match and put the other 5% into an ISA).

Your information on the £3600 is what that article was saying I think. The bit I don't get is that I will still have paid 40% tax on the money I pay into my wife's sipp. Or can I claim tax relief on it? When I fill in my tax return can I say that I paid £3600 into a sipp and get the tax back?

jem16

MoneyGeoff wrote: »

The bit I don't get is that I will still have paid 40% tax on the money I pay into my wife's sipp.

Yes.

Or can I claim tax relief on it?

No you can't as you can only claim tax relief on your pension.

When I fill in my tax return can I say that I paid £3600 into a sipp and get the tax back?

You cannot enter the amount on your tax return as the pension would have to be in your name.

Instead you ( or really your wife) pay £2800 into a pension and this will then be grossed up to £3600 by the pension provider.

There is no way for you to gain the tax relief but you will be helping to reduce your overall tax bill in retirement.