Paying £2880 into pension when retired

vixen1500

MallyGirl wrote: »

I think the £1000 was from a requirement to leave £1k in the SIPP

Its the personal savings allowance

Dazed_and_confused

Where does the £16850 come from?

I thought everyone could get £1000 interest on savings tax free

No. Everyone could get £17,850 interest on savings without having any tax to pay.

The Personal Allowance is £11,850 - so no tax to pay on the first £11,850.

Then comes the savings starter rate of tax which is upto £5,000 interest taxed at 0%

Only once those have been used up can the savings nil rate (aka Personal Savings Allowance) be used. This allows upto another £1,000 of interest to be taxed at 0%. So for most people unless you have income greater than £16,850 the savings nil rate (PSA) is of no use whatsoever.

You can only get the savings starter rate of tax in full (£5,000) if your non savings income (taxable wages, pension, self employed profits, rents etc) is £11,850 or less. Once it exceeds that you lose the savings starter rate pound for pound. So when your non savings income hits £16,850 you have lost it all. But then the savings nil rate would be available. Couple of examples to show this below,

Total income £18,380 (taxable wage £10,380 plus interest £8,000)
Less PA £11,850
Income to be taxed = £6,530

£5,000 x 0% = £0 (savings starter rate)
£1,000 x 0% = £0 (savings nil rate)
£530 x 20% = £106 (savings basic rate)

Total tax payable £106

For comparison if the non savings income (taxable wage) was say £13,000 the calculation would be,

Total income £21,000
Less PA £11,850
Income to be taxed = £9,150

£1,150 x 20% = £230 (basic rate)
£3,850 x 0% = £0 (savings starter rate)
£1,000 x 0% = £0 (savings nil rate)
£3,150 x 20% = £630 (savings basic rate)

Total tax payable £860

This assumes the person concerned hasn't either applied for or received Marriage Allowance.

vixen1500

Dazed_and_confused wrote: »

No. Everyone could get £17,850 interest on savings without having any tax to pay.

The Personal Allowance is £11,850 - so no tax to pay on the first £11,850.

Then comes the savings starter rate of tax which is upto £5,000 interest taxed at 0%

Only once those have been used up can the savings nil rate (aka Personal Savings Allowance) be used. This allows upto another £1,000 of interest to be taxed at 0%

You can only get the savings starter rate of tax in full (£5,000) if your non savings income (taxable wages, pension, self employed profits, rents etc) is £11,850 or less. Once it exceeds that you lose the savings starter rate pound for pound. So when your non savings income hits £16,850 you have lost it all. But then the savings nil rate would be available. Couple of examples to show this below,

Total income £18,380 (taxable wage £10,380 plus interest £8,000)
Less PA £11,850
Income to be taxed = £6,530

£5,000 x 0% = £0 (savings starter rate)
£1,000 x 0% = £0 (savings nil rate)
£530 x 20% = £106 (savings basic rate)

Total tax payable £106

For comparison if the non savings income (taxable wage) was say £13,000 the calculation would be,

Total income £21,000
Less PA £11,850
Income to be taxed = £9,150

£1,150 x 20% = £230 (basic rate)
£3,850 x 0% = £0 (savings starter rate)
£1,000 x 0% = £0 (savings nil rate)
£3,150 x 20% = £630 (savings basic rate)

Total tax payable £860

This assumes the person concerned hasn't either applied for or received Marriage Allowance.

I have never heard of that

But I am under the £11850 PA if I add everything together

Thanks for explaining

Dazed_and_confused

So you definitely won't be able to make use of the Personal Savings Allowance.

xylophone

Tax Year 2019/20

You now have £3,600 in the SIPP.

Let's suppose you want to take the maximum 25% tax free PCLS (£900) and draw down the full balance (£2700) immediately.

The £2700 is taxable as pension income so add it to your gross earnings and gross taxable benefits. Now add gross savings interest.

As an example, suppose earnings £8000, pension income £2700, benefits £1800, savings interest £2000.

Your earnings, pension and benefits = £12,500. They use up your personal allowance.

Your savings income is within the £5000 0% savings band.

You owe no tax on your non savings income and none on your savings interest.

See post 4 here (tax year 18/19)

https://forums.moneysavingexpert.com/discussion/comment/75587107#Comment_75587107


However...

If you draw down the whole of the pension income (£2700) in one payment, the pension provider will tax it on a "month 1" basis - that is to say it will be treated as though you were earning that much every month.

£1042 will be paid tax free and the balance will have 20% tax deducted.

Therefore you will need to claim back £331.60 from HMRC.

You should also not that if the SIPP provider is Hargreaves Lansdown, there is a hefty fee for closing the SIPP within one year of opening it.

There also a fee (but much smaller) for closing it after this time.

Asghar

Some brilliant explanations and examples there from "Dazed and confused" and "xylophone".

Many thanks, you are a credit to this forum.

vixen1500

xylophone wrote: »

You now have £3,600 in the SIPP.

Let's suppose you want to take the maximum 25% tax free PCLS (£900) and draw down the full balance (£2700) immediately.

The £2700 is taxable as pension income so add it to your gross earnings and gross taxable benefits. Now add gross savings interest.

As an example, suppose earnings £8000, pension income £2700, benefits £1800, savings interest £2000.

Your earnings, pension and benefits = £12,500. They use up your personal allowance.

Your savings income is within the £5000 0% savings band.

You owe no tax on your non savings income and none on your savings interest.

See post 4 here (tax year 18/19)

https://forums.moneysavingexpert.com/discussion/comment/75587107#Comment_75587107


However...

If you draw down the whole of the pension income (£2700) in one payment, the pension provider will tax it on a "month 1" basis - that is to say it will be treated as though you were earning that much every month.

£1042 will be paid tax free and the balance will have 20% tax deducted.

Therefore you will need to claim back £331.60 from HMRC.

You should also not that if the SIPP provider is Hargreaves Lansdown, there is a hefty fee for closing the SIPP within one year of opening it.

There also a fee (but much smaller) for closing it after this time.

Yes its with HL so I was planning on leaving £1000 in it and paying another £2880 in the new tax year.

But as I have yet to work out have to withdraw th £2600 it wont be withdrawn this rax year, so next i will have double to withdraw

But from what has been explained I still shouldn't have to pay tax on it

xylophone

You have £3600 at the moment.

You have decided not to withdraw any of the money in this tax year but to contribute another £2880 after April 6th?

You will end up with £7200.

You want to take the maximum PCLS - £1800.

The balance (£5700) is taxable as income in the tax year it is drawn down.

You want to leave £1000 in the account so you can draw down £4,700

See previous re tax.

The mechanics of doing it? Phone HL and explain what you want to do - they will take you through the process and send the necessary forms.

You will probably find that they will FP the PCLS and pay the drawdown in accordance with their pension pay day schedule.

vixen1500

xylophone wrote: »

You have £3600 at the moment.

You have decided not to withdraw any of the money in this tax year but to contribute another £2880 after April 6th?

You will end up with £7200.

You want to take the maximum PCLS - £1800.

The balance (£5700) is taxable as income in the tax year it is drawn down.

You want to leave £1000 in the account so you can draw down £4,700

See previous re tax.

The mechanics of doing it? Phone HL and explain what you want to do - they will take you through the process and send the necessary forms.

You will probably find that they will FP the PCLS and pay the drawdown in accordance with their pension pay day schedule.

I only paid in on 25th feb and the tax relief isn't going to be paid until 21 April so cant withdraw this tax year.

I suppose I should if wait until the new tax year to start.


Could I please ask what does FP the PCLS mean?

I have requested a UFPLS illustration and application pack - hopefully this was the right thing to do

Thanks

xylophone

FP

Make a faster payment into your bank account.