SIPP for me or my wife

Rhiga

Hello, I'm terrible at this pension game but have some money from a year's earnings and have an idea of what to do with it but not sure of the best option.

I'm 50 and my wife is 53. I have about £40,000 of savings in a current account (don't ask). This year I am a higher rate tax payer. Next year I am likely to be a low rate or zero rate tax payer. My wife is a low rate tax payer.

My question. Could I split the £40k and put £20k in a SIPP for my wife and gain the tax 20% tax advantage for doing this and withdraw gradually from it (to the tax efficient limits) when my wife reaches 55? And put 20k in a SIPP for myself and reap 40% tax advantage and leave that money in the pension with an option to withdraw when I reach 50?

Am I missing something crucial? These are absolutely legitimate earnings that I have paid 40% tax on this year.

If anyone can confirm I'd be most grateful.

kidmugsy

Rhiga wrote: »

I'm 50 and my wife is 53. I have about £40,000 of savings in a current account (don't ask). This year I am a higher rate tax payer. Next year I am likely to be a low rate or zero rate tax payer. My wife is a low rate tax payer.

Could I split the £40k and put £20k in a SIPP for my wife and gain the tax 20% tax advantage for doing this and withdraw gradually from it (to the tax efficient limits) when my wife reaches 55? And put 20k in a SIPP for myself and reap 40% tax advantage and leave that money in the pension with an option to withdraw when I reach 50?

That last "50": you mean '55', don't you?

(i) Say you contribute £20k net for yourself. That means that the taxpayer adds £5k to your SIPP. And you can claim back £5k for yourself from HMRC if your 15/16 income exceed the higher rate threshold by £25k or more.

That's OK as long as your earnings (not income; earnings) in 15/16 (less any other pension contribution you made) exceeded £25k.

(ii) You can contribute £20k net for your wife as long as her earnings, less any other pension contribution she's made, equals or exceeds £25k for 15/16.

xylophone

http://www.hl.co.uk/pensions/sipp

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

https://www.aegon.co.uk/content/dam/ukpaw/documents/claiming-tax-relief-on-personal-contributions.pdf

See the above for information ( annual allowance/lifetime allowance/relevant earnings / tax relief etc )relevant to your enquiry.

leave that money in the pension with an option to withdraw when I reach 50?

55 at the moment

zagfles

You can't get tax relief on money that goes into your wife's pension. She gets the tax relief. You also need to watch out for the earnings limit as above - if she earned £10k (taxable net relevant earnings, minus any contributions to an occupational scheme) than that's all you can put the pension gross - so £8k net into the pension.

Rhiga

kidmugsy wrote: »

That last "50": you mean '55', don't you?

(i) Say you contribute £20k net for yourself. That means that the taxpayer adds £5k to your SIPP. And you can claim back £5k for yourself from HMRC if your 15/16 income exceed the higher rate threshold by £25k or more.

That's OK as long as your earnings (not income; earnings) in 15/16 (less any other pension contribution you made) exceeded £25k.

(ii) You can contribute £20k net for your wife as long as her earnings, less any other pension contribution she's made, equals or exceeds £25k for 15/16.

Yes, absolutely I meant "55".

So, I contribute 20k to a pension. HMRC (the taxpayer) will add 5k (25% - should it be 4k?). I then make a claim through self-assessment, I presume, for £5k (again 25%, though confused it isn't 20%) provided my remaining income once the 20k is deposited is greater than 25K, which it is. Sorry to summarise but it is the only way I understand these things.

Unfortunately my wife's earnings are less than £25k. Presumably I should only deposit into a pension scheme her earnings minus the lower rate tax threshold to get the full benefit.

If you can confirm this I'd be most grateful.

kidmugsy

Rhiga wrote: »

Unfortunately my wife's earnings are less than £25k. Presumably I should only deposit into a pension scheme her earnings minus the lower rate tax threshold to get the full benefit.

No, you want to make a gross contribution equal to her earnings (less any other contribution she's made). So the net contribution - the amount that you or she hands over - is 0.8 times that. Then she gets tax relief paid into her pot (even on the bit of her earnings she doesn't pay tax on).

Illustration. Her earnings: £10k. Other pension contribution she's made: £1k. Therefore gross contribution she/you can make on her behalf = £9k. Therefore the net contribution you/she makes = £9k x 0.8 = £7.2k. Tax relief that will be added by HMRC = £1.8k

Rhiga wrote: »

So, I contribute 20k to a pension. HMRC (the taxpayer) will add 5k....

yes, because £5k is 20% of the total gross £25k.

Rhiga wrote: »

I then make a claim through self-assessment, I presume, for £5k....

yes, subject to:

Rhiga wrote: »

provided my remaining income once the 20k is deposited is greater than 25K, which it is.

No, this last bit is a tangle of error. First tell us your annual earnings, or at least assure us that they exceed the higher rate threshold by £25k or more. You only get 40% relief on income on which you pay 40% tax.

Rhiga

kidmugsy wrote: »

No, you want to make a gross contribution equal to her earnings (less any other contribution she's made). So the net contribution - the amount that you or she hands over - is 0.8 times that. Then she gets tax relief paid into her pot (even on the bit of her earnings she doesn't pay tax on).

Illustration. Her earnings: £10k. Other pension contribution she's made: £1k. Therefore gross contribution she/you can make on her behalf = £9k. Therefore the net contribution you/she makes = £9k x 0.8 = £7.2k. Tax relief that will be added by HMRC = £1.8k

yes, because £5k is 20% of the total gross £25k.


yes, subject to:




No, this last bit is a tangle of error. First tell us your annual earnings, or at least assure us that they exceed the higher rate threshold by £25k or more. You only get 40% relief on income on which you pay 40% tax.

My earnings are a bit of a tangle too but once I've sorted out paperwork they'll be about 75k. I presume this therefore means that any investment at this amount minus the higher rate of tax (42,285) minus any current contribution (peanuts) is what I'd gain 40% relief from.

And, thanks so much, I now understand the situation with my wife.

kidmugsy

Rhiga wrote: »

My earnings are a bit of a tangle too but once I've sorted out paperwork they'll be about 75k. I presume this therefore means that any investment at this amount minus the higher rate of tax (42,285) minus any current contribution (peanuts) is what I'd gain 40% relief from.

Exactly: that tells you your tax-efficient contribution. Remember to multiply by 0.8 for the net contribution you pay to the provider. Good luck with it all. Skates on; you need to act on or before April 5th.