The Pension Loophole article discussion

kidmugsy

Riverside14 wrote: »

I work irregularly and so do not know what my gross income will be for the current financial year. So is the income calculation based on this financial year or last?

This problem would also apply to someone who is self employed.

It's this financial year that counts. Remember that all rules are written by civil servants who get a nice regular salary and have no instinct for the positions that other people might find themselves in.

silver_surfer_51

My concern with all this is not so much the use of the SIPP to make the gain suggested, but the costs that appear to be charged by the companies to get your money back out again! For example HG quote £75, while Best Invest quote £150. Add this to their admin charges then anyone with only a part time job earning say £5k pa would appear to make very little out of the whole thing. Or am I missing something?

Crudeoyle

Am I correct in reading this?

If I set up personal pensions on behalf of my niece (aged 1) and put in up to the non-tax payer rate (£3,600) I could use this loophole even though I am only 25? I realise in the opening gambit it states it is only available for 60+ but then talks of opening one for your grand children.

If this is correct could I do this with multiple unemployed family members to gain even more? Do they have to be a certain distance of relative or could I use more distant family/friends?

I might be being stupid here but i thought I would ask.

dunstonh

If I set up personal pensions on behalf of my niece (aged 1) and put in up to the non-tax payer rate (£3,600) I could use this loophole even though I am only 25?

No you cant as your niece is 54 years too young to commence retirement benefits.

Crudeoyle

Fair enough, the wording in the article threw me off and I'm a pension novice so no idea really, thought it was worth an ask, still going to get my Dad informed and see if he wants to do it.

conkerer

I want to try this; thanks to Martin for the suggestion.
A couple of questions:
Re opening a SIPP-I checked the MSE article on SIPPs and the cheap SIPP table had Hargreaves Lansdown at the top. However, if I was to put £8000 in cash into a SIPP would that be the most cost effective? Wouldn't Bestinvest or Fidelity be better on £8/10,000?
Can I open two SIPPs simultaneously, rather than wait for the first to attract the additional £2,000?
Thanks

dunstonh

I checked the MSE article on SIPPs and the cheap SIPP table had Hargreaves Lansdown at the top

I'm surprised HL is coming up cheapest. However, it it is for you then fair enough.

Wouldn't Bestinvest or Fidelity be better on £8/10,000?

What does your research tell you?

Can I open two SIPPs simultaneously, rather than wait for the first to attract the additional £2,000?

you can have as many as you like.

Medosh

mackemgolf wrote: »

.. surely the payment of the pension contributions will in the first place increase the amount of the basic rate band by 100% of the pension contribution so that the taking of the 75% taxable lump sum under the small pot can in no way push someone into higher tax bracket.

Thanks mackemgolf, I am also interested to have confirmed that the example of a 60+ worker, earning £30k, and contributing the max 3 x £10k gross under Small Sum B scheme, and then taking the £22.5k taxable lump sum payout, can not have any of this total £52.5k total for the year taxed at 40%?

Medosh

Could someone please explain the tax implications in a manner that can be understood by non-experts?
The 'Susy' example in the article was useful and easily understood. But what was not explained was what would happen if she exceeded her contribution to the maximum allowed. (She earned £30k per anum so could have contributed the maximum £24k under rules of Small Pot
This example, together with one for an example of a person earning say £50k or £60k and also contributing the maximum under Small Pot B would could give a clearer picture of who, if any, could beneficially use this scheme for the maximum contributions.

jamesd

Susie can pay £30,0000 gross into three pension pots. The pension providers will deduct basic rate tax when they pay her. She can phone HMRC and tell them that she has made or will make £30,000 of gross pension contributions. HMRC will increase her basic rate income tax band by £30,000. The pension providers will have deducted the correct amount of income tax. No change to her tax code with her employer will be needed because her employer is also deducting the correct amount of income tax.

If Susie had started out as a higher rate tax payer HMRC would increase the number on her notice of coding to get her the extra tax relief that she is entitled to. This extra comes from two places: the higher rate relief on the pensions and the higher part of her income that is subject to basic instead of higher rate tax. It's higher because she put in £30,000 with tax relief but only took out 75% of that as taxable income, so her basic rate band has a net increase of 25% of £30,000.

Susie's situation isn't complicated and she wil at all times pay the correct tax even if she doesn't contact HMRC. But she should to tell them what is happening and so that she can be reassured that all is just going to work out correctly without any hassle. She should not be reluctant to tell HMRC what she is doing, the HMRC employees will diligently work to correctly apply the law, without judging her.