Hypothetical question?

CathA

Assume someone is 55, a non tax payer and this occurs after the new pension rules come in next year.

Could you open a personal pension of some description, pay in £2880 and obtain the government tax relief to bring it up to £3600, wait until the end of the tax year/start of the next tax year, then draw it all out and do it all again?

I appreciate there would be charges, but also there would be some growth probably. Taking t'other from which, there would be an increase of quite a bit just from the tax relief.

Just wondering from a mathematical point of view? Thanks.

SnowMan

Yes that should be possible for most non-taxpayers between age 55 and age 74 (obviously assuming the 75% taxable part of the £3,600 doesn't take that person above their personal allowance, in which case the 'gain' of £720pa is reduced).

The £3,600 is less than £7,500 so not caught by the lump sum recycling rules, and the contribution of £3,600 is less than £10,000 so within the annual allowance.

I've just opened a SIPP with Fidelity and paid in £2,880 (net). While I am many years off being able to get hold of the money, I envisage (under the current draft rules) I should be able to take it out at a time when I remain below my personal allowance.

There are a lot of loopholes like this. The question is how long will they remain.

CathA

SnowMan wrote: »

Yes that should be possible for most non-taxpayers between age 55 and age 74 (obviously assuming the £3,600 doesn't take that person above their personal allowance, in which case the 'gain' of £720pa is reduced).

The £3,600 is less than £7,500 so not caught by the lump sum recycling rules, and the contribution of £3,600 is less than £10,000 so within the annual allowance.


There are a lot of loopholes like this. The question is how long will they remain.

That was what I thought. If someone only had £2880 to use like this, then technically they could do this for as many years as they wanted, making approximately £700 or so per year (obviously taking into account charges and growth etc). Over 20 years that's a pretty tidy sum!! Depending on who gets elected and what happens to the pension rules next year this could be quite an interesting proposition? Do pension providers have a time limit of how long you have to have a pension 'open' with them? For example, open a pension 1st April, get the tax relief added 2nd April, close it 3rd April? I'm not for one instant thinking tax relief gets added that quickly (!) God knows HMRC is not the speediest of institutions but as an example. Thanks.