Paying £2880 into pension when retired

JohnB47

Dazed_and_confused wrote: »

JohnB47

I'm thinking of getting my wife, self employed, income <£8000, aged 61, to set up a SIPP with HL

If this is total income (each year) in 2015:16 and 2016:17 has your wife applied for the Marriage Allowance?

If you pay tax it could benefit you by £200+ per year

Thanks. Yes, we have this already set up. I just need to factor in that this has reduced her allowance.

JohnB47

xylophone wrote: »

Your wife's " relevant earnings" are (say) £8000 a year gross.

With regard to a pension contribution, she may contribute up to £2880 or total net relevant earnings (whichever is the greater) to a personal pension and receive tax relief, even though she does not actually pay tax.

£2880 + TR £720 = £3600 in the pension.


£6000 + TR £2000 = £8000 in pension.

Suppose she opened the HL SIPP, made no investments and after four years had £32,000 in the pension.

She might then choose to take the tax free lump sum and then draw down as much as with her state pension would keep her a non tax payer.

Or she might choose to defer her state pension until she had used up the whole of the HL pension against her personal tax allowance.

She might choose to continue to contribute £2880 and receive tax relief to the HL pension until she reached age 75, (assuming the rules don't change).

Thanks for that.

Hmmm. A bit confused still. AnotherJoe has said "If her income is less than £8000 (so, above £7k?) there's no need to specifically pay in £2880. It could be any amount up to 80% of what she earns." But you seem to be saying that she can contribute an amount equal to the whole of her net income.

While we're at it, can I clarify which financial year we're talking about? I'm presuming that if she starts a cash SIPP before 5th April this year, that I need to base the lump sum contribution on her earnings (taxable?) in the 2015 - 2016 tax year, the last year for which she has full figures and for which she's submitted a tax return. In that case the taxable earnings will be quite small - the business has ramped up significantly last year.

So, to roll both questions into one - she had taxable income in the tax year 2015 - 2016 of £4000 but more likely to be around £7000 in the tax year 2016 - 2017. Presuming that's it's the taxable income that's used, which figure is used to work out the lump sum contribution to set up the SIPP and what is the max contribution? (When I say taxable income, I mean gross income minus non taxable overheads, eg insurance, membership of governing bodies etc.)

Thanks for all the help here.

maximumgardener

? just phone HL .
I am sure they will explain exactly what you can do and facilitate it for you .

JohnB47

maximumgardener wrote: »

? just phone HL .
I am sure they will explain exactly what you can do and facilitate it for you .

Yes, but I'm one of those odd people who really wants to understand things, particularly investment related, before making that sort of contact. I can't really make use of the conversation because I wouldn't know the sorts of questions to ask.

I'm very grateful for any replies I get to my posts here. Of course, people can just ignore me if they wish.

Cheers.

bigadaj

JohnB47 wrote: »

Thanks for that.

Hmmm. A bit confused still. AnotherJoe has said "If her income is less than £8000 (so, above £7k?) there's no need to specifically pay in £2880. It could be any amount up to 80% of what she earns." But you seem to be saying that she can contribute an amount equal to the whole of her net income.

While we're at it, can I clarify which financial year we're talking about? I'm presuming that if she starts a cash SIPP before 5th April this year, that I need to base the lump sum contribution on her earnings (taxable?) in the 2015 - 2016 tax year, the last year for which she has full figures and for which she's submitted a tax return. In that case the taxable earnings will be quite small - the business has ramped up significantly last year.

So, to roll both questions into one - she had taxable income in the tax year 2015 - 2016 of £4000 but more likely to be around £7000 in the tax year 2016 - 2017. Presuming that's it's the taxable income that's used, which figure is used to work out the lump sum contribution to set up the SIPP and what is the max contribution? (When I say taxable income, I mean gross income minus non taxable overheads, eg insurance, membership of governing bodies etc.)

Thanks for all the help here.

Contributions have to be made in the tax tear to which they are relevant, so you have to make contributions before 6th April for the 2016/17 tax year. It may be that you say you don't know your income at that time, but you need to make the best estimate and ensure you don't over contribute.

Contributions receive the tax relief direct as applied for by the insurer or platform so contribute no more than 80% of your earnings.

JohnB47

bigadaj wrote: »

Contributions have to be made in the tax tear to which they are relevant, so you have to make contributions before 6th April for the 2016/17 tax year. It may be that you say you don't know your income at that time, but you need to make the best estimate and ensure you don't over contribute.

Contributions receive the tax relief direct as applied for by the insurer or platform so contribute no more than 80% of your earnings.

Thanks.

That's interesting. So we have to estimate my wifes taxable income for the current tax year. As of Jan 2017, she's up to £6167 and we estimate she'll be around £7200 by 5th April.

When you say "so contribute no more than 80% of your earnings" is that, like, a rule?

Anyway, so she could start a cash SIPP with a lump sum of £5600 (80% of £7000). The taxman would contribute £1400, making it up to £7000. She could then take £1750 as a lump sum during the next financial year and start drawing down, if she wished. Then, in the tax year 2017 - 2018 she could either make another lump sum deposit or set up a monthly deposit, all based on her assumed taxable income for that year. Have I got that correct?

Sorry, one more question - we are definitely talking about 80% of her taxable income, yes?

I have more questions but I'll do that in another post.

Thanks again.

AnotherJoe

JohnB47 wrote: »

Thanks. I think I need to read up more about this. I seem to have become hung up on the £2880 figure. Presumably that is just talked about as an illustration? The 3600, 2800 and 720 figures suggest that whatever we invest, the taxman donates 25%. Is that correct? You mention <£7000. Is there an minimum income limit on these schemes? My wifes income fluctuates, although it's been slowly growing over recent years.

I've worked out that we have only a max of four years to take part in this arrangement, before her SP kicks in and her allowance tax would be all used up (assuming she continues to work).

Seems like a bit of juggling of figures is needed, otherwise she'll end up paying tax on the drawdown income. Then again, she could go the drawdown route for a few years, then stop drawdown and just take 25% tax free every tax year?

Just trying to get my head around this. Seems like a great way to make use of extra funds for a few years.

Thanks again.

The 2880 is what you can put in if you have earnings below £3,600, which could be zero.

If you have earnings above that you can put in more. UP to 80% of your pay.

Since not much time is left this tax year just open a SIPP for her this weekend, make a lowball estimate of your wife's earnings and pay in 80% of that.
Say you think she'll earn £7k. So, round that down to £6k and pay in £4,800. A few weeks later that will become £6k in her account.

If it turns out to be £7k she earned,well cest la vie, its still a lot better than not doing it at all because you weren't sure of the exact number. You literally would be passing over the chance to pick up £1,200 you saw on the floor, with zero chance of being arrested.

As you say the best value for this scheme is then to withdraw it before her pensions kick in as she'll pay less( no?) tax on it. Even if she does pay tax, since 25% of each withdrawal is tax free its still free money.

xylophone

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/pension-contributions-the-basics/

bigadaj

JohnB47 wrote: »

Thanks.

That's interesting. So we have to estimate my wifes taxable income for the current tax year. As of Jan 2017, she's up to £6167 and we estimate she'll be around £7200 by 5th April.

When you say "so contribute no more than 80% of your earnings" is that, like, a rule?

Anyway, so she could start a cash SIPP with a lump sum of £5600 (80% of £7000). The taxman would contribute £1400, making it up to £7000. She could then take £1750 as a lump sum during the next financial year and start drawing down, if she wished. Then, in the tax year 2017 - 2018 she could either make another lump sum deposit or set up a monthly deposit, all based on her assumed taxable income for that year. Have I got that correct?

Sorry, one more question - we are definitely talking about 80% of her taxable income, yes?

I have more questions but I'll do that in another post.

Thanks again.

It's not the entire taxable income it's relevant earnings, so primarily salary but excludes pension income, rental income etc

JohnB47

bigadaj wrote: »

It's not the entire taxable income it's relevant earnings, so primarily salary but excludes pension income, rental income etc

OK, the wife has just got her self employment income. No other sources until her SP kicks starts in 2021. So that answers that. Ta.