Paying £2880 into pension when retired

Dazed_and_confused

The personal allowance has now increased to £11500 (2017:18 tax year) and if total income includes some savings interest (quite normal for MSE followers who have made use of Santander, Tesco etc current accounts) then it is possible to have £17,500 before paying tax this year however as soon as pension (including State Pension) goes over £11500 you would have some tax to pay.

But basically you can effectively ignore smallish amounts of savings interest when calculating how much pension you can drawdown if your total income will be less than £17,500

SeeMe

Dazed_and_confused wrote: »

The personal allowance has now increased to £11500 (2017:18 tax year) and if total income includes some savings interest (quite normal for MSE followers who have made use of Santander, Tesco etc current accounts) then it is possible to have £17,500 before paying tax this year however as soon as pension (including State Pension) goes over £11500 you would have some tax to pay.

But basically you can effectively ignore smallish amounts of savings interest when calculating how much pension you can drawdown if your total income will be less than £17,500

So in my case none tax payer pension 10k exact, will get around £600 from cash isa, santander, tesco , and 2 more accounts, is that all classed as my income.

Dazed_and_confused

ISA interest can be ignored providing you adhere to the rules for ISA's but all other interest is taxable income.

From your figures let's assume £500 of the interest is taxable.

If you have total income of £10500 this year it is less than Personal allowance so no tax to pay.

If you have £12000 made up of £11500 pension and £500 savings then the pension income is covered by your personal allowance and the savings income is to be taxed. In this situation though the savings rate band comes into play and the £500 is taxed at the savings rate of 0% so still no tax to pay.

SeeMe

Dazed_and_confused wrote: »

ISA interest can be ignored providing you adhere to the rules for ISA's but all other interest is taxable income.

From your figures let's assume £500 of the interest is taxable.

If you have total income of £10500 this year it is less than Personal allowance so no tax to pay.

If you have £12000 made up of £11500 pension and £500 savings then the pension income is covered by your personal allowance and the savings income is to be taxed. In this situation though the savings rate band comes into play and the £500 is taxed at the savings rate of 0% so still no tax to pay.

Ok thanks got it.

Now just have to work out the sipp procedure i mentioned in a earlier post, its easy for some to understand, but not so for less clued up like me.

moneyfoolish

Just had the first tax free payment sent to my wife's nominated account from HL which worked like clockwork. Now we are waiting for a one-off income payment of £10 in May which we requested to generate a tax code from the Tax Office to HL. However, as soon as the SIPP Income Drawdown Account was created yesterday I saw a tab titled "Drawdown Information" which shows a tax code for my wife of 1150L / M1. Does this mean that they will be using a Personal Allowance of £11500 until they get a correct one from the Tax Office and that any income taken until a new tax code arrives will be untaxed?

missile

Dazed_and_confused wrote: »

The personal allowance has now increased to £11500 (2017:18 tax year) and if total income includes some savings interest (quite normal for MSE followers who have made use of Santander, Tesco etc current accounts) then it is possible to have £17,500 before paying tax this year however as soon as pension (including State Pension) goes over £11500 you would have some tax to pay.

But basically you can effectively ignore smallish amounts of savings interest when calculating how much pension you can drawdown if your total income will be less than £17,500

I am not dazed but certainly confused:

Please explain how you have calculated £17,500 income before paying tax?

xylophone

Please explain how you have calculated £17,500 income before paying tax?

See

http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/

Dazed_and_confused

moneyfoolish

You may want to check with HL that they are going to use that specific tax code but on the basis that it's shown in your wife's account because they will be using it then basically yes, it is the emergency tax code so if they use that they will pay anything upto £958 each month without deducting tax from the taxable income element of any withdrawals.

Dazed_and_confused

missile

The £17500 figure takes into account the Personal Allowance, savings rate band and personal savings allowance.

The Personal Allowance this year, 2017:18, is £11500 (for everyone earning less than £100k).

Above that there is the savings rate band where upto £5000 of savings interest is taxed but at 0%.

And finally there is the personal savings allowance rate band of £1000 where another £1000 of interest is taxed but also at 0%.

Any wages, pension etc over £11500 reduce the savings rate band but every basic rate payer can get the £1000 personal savings allowance.

So for example

Wages £11000
Interest £5000

No tax to pay on wages as less than the personal allowance. £500 of the interest is tax free due to the spare personal allowance and the remaining £4500 interest is taxed at the savings rate of 0%. You don't see the benefit of the personal savings allowance in this example but as no tax to pay it doesn't really matter ;-)

Or

Wages 13000
Interest 5000

£11500 of the wages isn't taxed due to the personal allowance and the remaining £1500 is taxed at 20%.

The savings rate band of £5000 is reduced by £1500 to £3500 to take account of the amount of wages taxed at 20%.

The interest of £5000 is therefore taxed as
£3500 x 0% (savings rate band)
£1000 x 0% (personal savings allowance rate band)
£500 x 20% (basic rate tax)

moneyfoolish

Dazed_and_confused wrote: »

moneyfoolish

You may want to check with HL that they are going to use that specific tax code but on the basis that it's shown in your wife's account because they will be using it then basically yes, it is the emergency tax code so if they use that they will pay anything upto £958 each month without deducting tax from the taxable income element of any withdrawals.

Thanks for that. I'll take your advice and give them a ring. In fact, even if they use that code I know it isn't correct as my wife has passed on the maximum possible from her code to me and also has some bank interest but I can work out the amount she can take out tax free and if I know the code they are showing means it won't be taxed then I will know that she can withdraw it any time in the tax year without her having to fill in forms to get it rebated.