Can husband give his 25% tax free sum to me to reinvest in my pension pot?

NKS

Can my husband give me money he withdraws from his pension pot, so we can reinvest it in mine with tax benefits?

My husband can retire later this year with a 100k-ish personal pension pot. Currently he's on a low salary and we can live on my salary (plus his state pension if we don't save it), so plan to leave his pot untouched for now.

I am sadly not old enough to retire with him (19 yr age gap), but have recently had a pay rise the JUST tips me into higher tax band, so it is worth me using the extra to top up my almost non-existent pension. I want to go part time or freelance in the next few years to spend time with him, so there's a small window of time to make use of this 40% tax relief before we go back to a low joint income.

Question - if husband takes a 25% lump sum and puts the rest into drawdown, can that be put into my pension pot and get tax relief as a contribution (bonus money from government) as long as the amount stays within my annual allowance plus any carried over allowances? As extra income, would it attract 40% tax relief (that would be nice) or 20%? Or some mix of the two? I'm not sure if money from a spouse classes as 'taxable income' - if it does then surely the pension contribution would attract 40% relief?

We did go to see an IFA and these were the sort of creative things I wanted to discuss. But IFA was more interested in selling us new funds once he'd explained about drawdown/Uncrystallised Pension Fund Lump Sums. Do I need an accountant instead? We are not used to having money to think about and plan for!

Many thanks

Linton

Your husband can give you the 25%, or any other money he wishes. This of no interest to HMRC. You can put what is now your money into your pension provided it is below the various allowances and get your tax rebate. Your husband cant put money into your pension.

dunstonh

Can my husband give me money he withdraws from his pension pot, so we can reinvest it in mine with tax benefits?

Yes. it is his to do with as he wishes.

We did go to see an IFA and these were the sort of creative things I wanted to discuss. But IFA was more interested in selling us new funds once he'd explained about drawdown/Uncrystallised Pension Fund Lump Sums. Do I need an accountant instead? We are not used to having money to think about and plan for!

An IFA cannot just do a transaction. They have to recommend the whole scenario. Funds are key part of the package. Especially if the existing pension does not support income drawdown (which most older plans do not). The IFA is not selling you funds. The provider pays the IFA nothing. However, if a new pension is required, then it will mean pension type, provider and funds and making sure they remain suitable.

An accountant is no use here. It is not what they are for.

RickyB2000

I don't know, but this may be against the spirit of the law that prevents recycling tax free lump sums into pension schemes. Depends how much you are putting in (think around £7k is allowed).

Of course, this probably wouldn't be the case if you just put your own income into your pension and lived off your husbands tax free lump sum! Would make more sense if your employer offers salary sacrifice scheme.

EDIT: of course this probably would be the case still, reading HL recycling rules - increased pension contributions that you wouldn't have increased without the lump sum

NKS

Thanks all. I'm in the teachers pension - salary sacrifice (or accelerated contribution) would have had to be agreed before the beginning of the tax year, before my promotion and new salary. I could set up AVCs for the extra. It would only be worth taking money out of his pension and paying into mine if there was a tax relief benefit. Otherwise we just carry on living on my salary for now and paying any extra into either his or my pension. Either way, we are thinking joint funds rather than 'his' or 'mine'

This high income is a novelty and isn't likely to last more than a year or two, so we are keen to make the most of any benefits being a 40% tax payer can bring while it lasts and as it coincides with husband's ability to draw out of his pension this year.

RickyB2000

As I understand, his gift would not be income. So you would only be able to use it against your own teacher income. So the bit at 40% and the rest at 20%. And the 40% isn't already reduced away by your existing pension contributions (don't know much about the teacher scheme)?

NKS

dunstonh wrote: »

Yes. it is his to do with as he wishes.



An IFA cannot just do a transaction. They have to recommend the whole scenario. Funds are key part of the package. Especially if the existing pension does not support income drawdown (which most older plans do not). The IFA is not selling you funds. The provider pays the IFA nothing. However, if a new pension is required, then it will mean pension type, provider and funds and making sure they remain suitable.

An accountant is no use here. It is not what they are for.

Interesting. He did say we have option either to pay him hourly for advice, or for him to recommend a product which he'd get management fees or commission on (current pension doesn't support drawdown so we have to move it soon anyway). He was up front about the fees and I had gone to him saying I would prefer just to pay for advice. But we could tell he was far keener to recommend buying a new fund with ongoing management by him than to give creative or general advice about what to put where between us. Though he was recommended by a friend, it has made me wary.

NKS

kidmugsy wrote: »

What the OP wants to do is pukka and commonplace.



Would make EVEN more sense; but to avoid income tax it makes sense anyway, for two reasons. (i) Avoiding 40% tax on some small slice of the contribution. (ii) Probably drawing income in retirement that will avoid basic rate tax by virtue of the Personal Allowance.

OP: also suggest that your husband considers drawing down part of the taxable part of his pension if he would receive it tax-free. If it's surplus to requirements he could accumulate it in monthly savers, subscribe it to ISAs, or whatever.

Can I check: is it the new-style State Pension that your husband will get?

Yes - it is the new-style State Pension, full amount plus some extra for something years ago. He was going to defer 9 months as he will carry on working 9 months, but it now seems he'd be better off taking it and putting it into his pension pot and getting tax relief rather than a slightly enhanced weekly pension. He'll have a tiny civil service pension too from a few years of work there - together they will add up to about his tax allowance.
So drawing anything extra out of the pension pot would incur tax if he takes the UPFLS option - though he could then use that to pay to my pension pot and get tax relief.

If he pays me money - whatever the amount - does that class as taxable income for me? That would affect my 20/40% tax position, and that's the bit I am still unclear on. EDIT - I see someone beat m to the answer to this. Thanks

kidmugsy

NKS wrote: »

If he pays me money - whatever the amount - does that class as taxable income for me? That would affect my 20/40% tax position, and that's the bit I am still unclear on. EDIT - I see someone beat m to the answer to this. Thanks

(i) As you now know, a gift from your husband isn't taxable, and that's that.

(ii) I've just been googling, and one pension provider (Hargreaves Lansdown) said that the recycling rules are intended to catch spouses too. In which case they'd have caught a lot of people, except that nobody knows of any cases of anyone at all being caught by the recycling rules, apparently. I should add that I have no idea whether your using Sal Sac for 17/18 could be caught - I'd guess not.

(iii) "He did say we have option either to pay him hourly for advice, or for him to recommend a product which he'd get management fees or commission on": then it sounds to me as if he wasn't an IFA at all: the "I" stands for independent, and they're not allowed to receive commission.

May I suggest that if nobody knowledgeable about the recycling rules adds a comment to this thread in the next couple of days, you might start a new thread with "recycling rules" in the title.

NKS

Recycling seems to be about a cycle of taking out and putting in and taking out again once people are over 55 - I can see how the govt wont like that to be an ongoing thing. We want to grow our joint pots as much as possible, so would take out of one and leave it in the other while the time is suitable, and then continue to ignore it (hopefully while it grows) till we need to start drawing on it in 5-10 years time. I wouldn't have access to my pot for another 9 years anyway, so if we move things about we can't 'cycle' it only move it one way.
Edit - But now that I know the term to google (thanks kidmugsy) I see that the original idea of taking a large lump sum from his pot to boost mine is definitely not approved. Shame - was a nice idea while it lasted! We do have some other savings which it may be worth putting into his or my pension this year though if we can get 20% relief on it.

Linton

NKS wrote: »

....
Edit - But now that I know the term to google (thanks kidmugsy) I see that the original idea of taking a large lump sum from his pot to boost mine is definitely not approved. Shame - was a nice idea while it lasted! We do have some other savings which it may be worth putting into his or my pension this year though if we can get 20% relief on it.

Depends on how you look at it. Your husband can use his 25% to pay for things that you normally pay for, whilst you use the spare income you now have to up your pension.