DH paying into a pension in my name?

freda

Good afternoon

I am a zero rate tax payer, DH is a higher rate tax payer. We want to start a pension, which will provide part of our income stream when we retire.

I am looking at minimising the tax payable, obviously (move over, Starbucks).

- can my husband pay into a pension scheme in my name, which will be topped up by the government at the higher rate but paid back to me at the lower or zero tax rate?

- alternatively, can my husband pay into a joint pension pot which will provide two zero or low rate taxable income streams (one income each) on retirement?

I hope these aren't daft questions, I'm finding it hard to get my head around all the intricate detail of pensions.

molerat

No to both questions. Your OH can pay into your pension but it will have no effect on his tax affairs ie he will pay it from his net higher rate taxed pay and be topped up into your pension at BR. There is no such thing as a joint pension.

somethingcorporate

freda wrote: »

Good afternoon

I am a zero rate tax payer, DH is a higher rate tax payer. We want to start a pension, which will provide part of our income stream when we retire.

Good afternoon - good plan, planning for the future is always wise.

freda wrote: »

I am looking at minimising the tax payable, obviously (move over, Starbucks).

The best way to maximise a pension is get the most going in (with lovely tax rebates) whilst paying as little in for it. If you husband has an employer contributing scheme it is best to utilise this to the fullest extent (as is free money!).

freda wrote: »

- can my husband pay into a pension scheme in my name, which will be topped up by the government at the higher rate but paid back to me at the lower or zero tax rate?

No, pensions are personal and tax rebate is at your marginal level - although for non-earners you can put in around £2,800 pa to be topped up to £3,600.

freda wrote: »

- alternatively, can my husband pay into a joint pension pot which will provide two zero or low rate taxable income streams (one income each) on retirement?

Pensions are personal, no such thing as a joint one. Tax payable at the time of crystalisation will be at your marginal rate at that point in time.

freda wrote: »

I hope these aren't daft questions, I'm finding it hard to get my head around all the intricate detail of pensions.

There is no such thing as a daft question and better to ask them upfront when you are planning than at the end when you are about to retire and there is nothing you can do about it.

freda

Thank you very much indeed for your clarification.

I do not currently work, but plan to do so when the children are a lot older - for the last c. 10-15 years of my working life.

Bearing this life plan in mind, I suppose it is sensible for DH to max his pension contributions while I am not working, as he will get the higher rate tax rebate on them. (He doesn't currently have any employer contributions, although that will obviously change).

Then, when I start working I can start my own small pension with employer contributions and tax rebates (though they are unlikely to be at the higher rate).

Is that logic sound?

somethingcorporate

Yes, I would say so

If your husband gets under the higher rate tax bracket it will make no difference (input-wise) whether it goes into his or yours at this point as the marginal benefit will be at 20%.

Do may sure you are claiming back the additional 20% if the payment is not taken from his gross pay (via self-assessment).

atush

If you dont' pay tax, and he does......

He should contribute to his own pension and get 40% TR

and all non isa cash deposits and any other such investments should be in your name rather than his to avoid the 40% tax.

jamesd

The better plan for your situation seems to be your husband making pension contributions in his own name to get higher rate tax relief and protect the household's full child benefit payment. Child benefit best paid to you rather than him because that will protect your state pension entitlement later.

Then when he reaches 55 he can take a tax free lump sum from a pension and you can use that to pay into a pension in your own name over the years. This way he'll get initial tax relief, then you'll later get tax relief on the same money. And you'll both end up with some pension pot in your own individual names.

When it comes to retirement income it'll be good for him to use income drawdown instead of an annuity for part of his income generation. this is because a spouse can inherit 100% of a drawdown pot of money without any tax charge, so you'd get effectively a 100% spousal pension without it reducing his income before his death.

How is the pension taken from his pay? Is it "salary sacrifice", where he gets a reduction in his base pay and his employer pays the money into the pension in his name, also saving NI? This is the most efficient way and also means he needs to do nothing more to get the full tax relief. If the pension contribution is taken from after tax pay he should tell HMRC the amount of his own contributions (not any matching employer contribution) that ends up in the pension scheme. HMRC will then either adjust his tax code or pay him a tax refund. If he doesn't know the amount of just his part that goes into the pension he can take the after tax part and multiply by 1.25 to get the basic rate gross equivalent that HMRC needs. He should also tell HMRC how he did the calculation so that they are aware of it and can't go claiming back tax later if it's wrong, because they would have been supposed to notice and correct it at the time he told them.

freda

Thank you everyone for your input.

Just a couple of (hopefully last!) questions. To begin with, OH will be contributing to a private pension from his taxed income. His employer does not provide a scheme or contributions, although that should change in the next year or so, obviously.

Does that mean he has to fill in a self assessment form each year to claim the 40% tax relief on it?

If he ever gets paid enough to start losing child benefit, (which can be offset to some extent by pension payments I assume?) is that covered on the same form?

I'm trying so hard to get this right!

Thank you once again.

jamesd

No need to fill in an SA form each year unless he already does. He can tell HMRC the amount added to his pension including the basic rate tax relief part (which HMRC calls gross even though it's not gross for a higher rate tax payer). Some pensions add this at the time the contributions is made, others wait up to five or so weeks to get the tax refund from HMRC.

Pension payments reduce the income that counts for the child benefit calculation by one Pound for each Pound of pension money.

mania112

freda wrote: »

Good afternoon

I am a zero rate tax payer, DH is a higher rate tax payer. We want to start a pension, which will provide part of our income stream when we retire.

I am looking at minimising the tax payable, obviously (move over, Starbucks).

Right, the media lambasted Starbucks for something we would all do if a) we ran that company, or any other of that structure and b) have a financial product written in trust.

But back on topic.... what's a DH?

atush

Dear husband?