Paying £2880 into pension when retired

molerat

Have I missed a trick here ?

Probably.  If one of you has an income below their personal allowance they can allocate 10% of their allowance to the other partner providing that partner does not pay tax above the basic rate (or intermediate rate in Scotland).  That partner then has their annual tax reduced by £252.

zagfles

ossie48 said:

molerat said:

If you are going to make this a regular annual thing you need to do a small dip first to get the tax code allocated, saves having to reclaim tax.

Hi just a quick update and to clear my head. 

I rang Vanguard to instigate a small withdrawal to get the tax code allocated and arranged a telephone appointment. They told me the interest rate on cash in the pension plan is 2.95% (minus 0.2% for costs)

As we don't need the money I guess there's no harm in leaving it for the forseeable, repeating the same in 2023 or 2024 even (as long as the interest rate remains favourable) and withdrawing the lot as long as its under her personal allowance as a non earner, then rinse repeat. The alternative for the funds would be a Santander e saver @ 2.75% so horses for courses.

They also suggested as a non earner she might want to allocate me £1260 of her personal allowance. 

Have I missed a trick here ?

See https://www.gov.uk/marriage-allowance

(beware of scam/shyster sites you'll see on Facebook and the like which take a cut of your tax saving)

Simes122

I’m in Scotland - will be a HR taxpayer in retirement due to two decent DB pensions- Forces plus USS  (and a low £43662 HR tax threshold in Scotland).   My DB portion will just nudge me into the Scottish HR band, and I have a DC pot on top that I’ll draw from each year.   I have not exceeded my LTA.

in a year where I’ve drawn say £55k:  £44k DB plus £11k DC, is it worth me paying £2880 into a SIPP?  I assume I’ll get 20% relief on money I put into the SIPP, and (this is the bit I’m unclear on) my HR threshold raised in my tax return?  Not clear on what I’d need to do and if it is worth it.

(my wife is already as a retired non earner is doing 2880 in, 3600 out in a SIPP of her own).

Thanks!

sheslookinhot

Simes122 said:

I’m in Scotland - will be a HR taxpayer in retirement due to two decent DB pensions- Forces plus USS  (and a low £43662 HR tax threshold in Scotland).   My DB portion will just nudge me into the Scottish HR band, and I have a DC pot on top that I’ll draw from each year.   I have not exceeded my LTA.

in a year where I’ve drawn say £55k:  £44k DB plus £11k DC, is it worth me paying £2880 into a SIPP?  I assume I’ll get 20% relief on money I put into the SIPP, and (this is the bit I’m unclear on) my HR threshold raised in my tax return?  Not clear on what I’d need to do and if it is worth it.

(my wife is already as a retired non earner is doing 2880 in, 3600 out in a SIPP of her own).

Thanks!

You’ll get the 25% tax relief, but as income is over £43,662, you’ll be taxed 41% on anything above that figure. So, not worth it by my reckoning.

 I’m in a similar position next year where my small SIPP will incur 41% tax. I’ll leave to be inherited unless it’s needed to keep the wolves from the door.

Mutton_Geoff

I've bust the LTA and will be a high rate tax payer in retirement so this doesn't work for me sadly.

Simes122

sheslookinhot said:

Simes122 said:

I’m in Scotland - will be a HR taxpayer in retirement due to two decent DB pensions- Forces plus USS  (and a low £43662 HR tax threshold in Scotland).   My DB portion will just nudge me into the Scottish HR band, and I have a DC pot on top that I’ll draw from each year.   I have not exceeded my LTA.

in a year where I’ve drawn say £55k:  £44k DB plus £11k DC, is it worth me paying £2880 into a SIPP?  I assume I’ll get 20% relief on money I put into the SIPP, and (this is the bit I’m unclear on) my HR threshold raised in my tax return?  Not clear on what I’d need to do and if it is worth it.

(my wife is already as a retired non earner is doing 2880 in, 3600 out in a SIPP of her own).

Thanks!

You’ll get the 25% tax relief, but as income is over £43,662, you’ll be taxed 41% on anything above that figure. So, not worth it by my reckoning.

 I’m in a similar position next year where my small SIPP will incur 41% tax. I’ll leave to be inherited unless it’s needed to keep the wolves from the door.

Wouldn’t I able to claim a further relief (as an HR taxpayer) via my tax return?  I appreciate that might not be the right terminology!

Dazed_and_C0nfused

Simes122 said:

sheslookinhot said:

Simes122 said:

I’m in Scotland - will be a HR taxpayer in retirement due to two decent DB pensions- Forces plus USS  (and a low £43662 HR tax threshold in Scotland).   My DB portion will just nudge me into the Scottish HR band, and I have a DC pot on top that I’ll draw from each year.   I have not exceeded my LTA.

in a year where I’ve drawn say £55k:  £44k DB plus £11k DC, is it worth me paying £2880 into a SIPP?  I assume I’ll get 20% relief on money I put into the SIPP, and (this is the bit I’m unclear on) my HR threshold raised in my tax return?  Not clear on what I’d need to do and if it is worth it.

(my wife is already as a retired non earner is doing 2880 in, 3600 out in a SIPP of her own).

Thanks!

You’ll get the 25% tax relief, but as income is over £43,662, you’ll be taxed 41% on anything above that figure. So, not worth it by my reckoning.

 I’m in a similar position next year where my small SIPP will incur 41% tax. I’ll leave to be inherited unless it’s needed to keep the wolves from the door.

Wouldn’t I able to claim a further relief (as an HR taxpayer) via my tax return?  I appreciate that might not be the right terminology!

Yes.

I think it would work like this.

You pay £2,880.  £720 is added in basic rate tax relief making a fund of £3,600.

Your basic (and intermediate?) rate band is increased by £3,600, potentially saving you £756 in personal income tax liability.

So you have £3,600 in your fund for a net outlay of £2,124.

You then take out the whole fund and pay higher rate tax on the taxable element.

So £900 TFLS and £2,700 taxable which is £1,593 after tax.

Total ultimately received = £2,493

Simes122

Dazed_and_C0nfused said:

Simes122 said:

sheslookinhot said:

Simes122 said:

I’m in Scotland - will be a HR taxpayer in retirement due to two decent DB pensions- Forces plus USS  (and a low £43662 HR tax threshold in Scotland).   My DB portion will just nudge me into the Scottish HR band, and I have a DC pot on top that I’ll draw from each year.   I have not exceeded my LTA.

in a year where I’ve drawn say £55k:  £44k DB plus £11k DC, is it worth me paying £2880 into a SIPP?  I assume I’ll get 20% relief on money I put into the SIPP, and (this is the bit I’m unclear on) my HR threshold raised in my tax return?  Not clear on what I’d need to do and if it is worth it.

(my wife is already as a retired non earner is doing 2880 in, 3600 out in a SIPP of her own).

Thanks!

You’ll get the 25% tax relief, but as income is over £43,662, you’ll be taxed 41% on anything above that figure. So, not worth it by my reckoning.

 I’m in a similar position next year where my small SIPP will incur 41% tax. I’ll leave to be inherited unless it’s needed to keep the wolves from the door.

Wouldn’t I able to claim a further relief (as an HR taxpayer) via my tax return?  I appreciate that might not be the right terminology!

Yes.

I think it would work like this.

You pay £2,880.  £720 is added in basic rate tax relief making a fund of £3,600.

Your basic (and intermediate?) rate band is increased by £3,600, potentially saving you £756 in personal income tax liability.

So you have £3,600 in your fund for a net outlay of £2,124.

You then take out the whole fund and pay higher rate tax on the taxable element.

So £900 TFLS and £2,700 taxable which is £1,593 after tax.

Total ultimately received = £2,493

That’s brill - thanks!  That’s worth a small bit of admin!

drumtochty

No you are all wrong here with regards to pension tax relief in Scotland.

You pay in 2,880, HMRC put £720 in your SIPP pot.

When you do your tax return your 20% Scottish tax standard rate bracket "20% tax, increases by £720, therefore you pay 720 x 1% less tax. £7.20!!!!!!!! Your £43,662 HR barrier does not change due to pension tax relief. Therefore your 21% tax bracket decreases by £720. Your earnings over that bracket of £2,700 are now taxed at 41% and next year at 42% if your pension or other wage earnings you are around the £43,662 level.

( The UK HR limit is £50,271 and if you have a big chunk of non ISA protected dividend from shares etc ( taxed by the UK government ) charitable giving increases the £50,271 limit but not SIPP payments. So good for non tax protected ISA people but get that money into an ISA asap.

So now you have the issue I have, until April 2024, I am just under Scottish £43,662 pension earnings limit so will not get the extra £720 cash paid into my bank account by HMRC if I paid 41% tax but will be taxed on the majority of the £2,700 of the taxable SIPP at 41% this year and 42% next year.

Therefore unless PAYE income from pensions and wages  are say £2,000 to £2,700 over the Scottish £43,662 per year, it costs you money to do the £2,880 / £3,600 SIPP trick in Scotland.

It is a bit difficult to get your head around that but you must earn say £45,662 at least to make it worth while.

Therefore a "no no" in the say £41k to £45.6k bracket.

Qyburn

drumtochty said:

No you are all wrong here with regards to pension tax relief in Scotland.

I am not sure I follow your calculations but I can say with 100% certainty that my pension contributions have saved me 41% tax.  I am looking at my 21/22 calculation right now.