Paying £2880 into pension when retired

jerrysimon

cloud_dog wrote: »

Just to add... If you withdraw any taxable income via this process any future DC pension contributions will not receive tax relief above £4k, due to MPAA regulations.

Yes VERY important point I forgot that!

See_Em

So - stay below the personal allowance and remain effective

xylophone

Say you have an income

What kind of income? Remember that to qualify for tax relief, ( other than when using the £2880/£3600 arrangement) you need to consider "relevant earnings".

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

See_Em

Thanks for the note about 'relevant income'. Income from employment would be fine but not income from a pension

bioboybill

My wife did this last year and paid tax due to them applying a month 1 tax code as it was the first payment from the account. She got the tax back from HMRC about 6 months later.

This time they have a 270T tax code for her that they got last August. We assumed that if she did it again this year and withdrew £3600 then £900 would be her 25% tax-free and the other £2700 would be within her personal allowance. However HL have taken £88.40 tax. Are my assumptions wrong?

bowlhead99

bioboybill wrote: »

This time they have a 270T tax code for her that they got last August. We assumed that if she did it again this year and withdrew £3600 then £900 would be her 25% tax-free and the other £2700 would be within her personal allowance. However HL have taken £88.40 tax. Are my assumptions wrong?

The HMRC tax codes are used in the same sort of way by employers and pension provider.

Basically if she is on a 270 code she can get £2700 a year of personal allowance, so you would hope she escapes tax when she pulls £2700 out of the pension.

But

The £2700 tax free would be about 225 a month. Unfortunately she is doing this in Jan, by which point cumulatively at £225 a month (Apr '19, May '19.... Dec '19, Jan '20) she has only built up to £2250 cumulative tax free allowed for the ten months of the year so far.

So when she takes £2700 of taxable income last month, she's taking £450 in excess of what she can have within her personal allowance.

That would get taxed at 20% which is £90. So give or take roundings or whatevers, it would make sense that she has paid £88+ of tax

If she had taken all her money in month 1, she would have paid much more tax. If she took it all towards the end of March, no tax.

bioboybill

bowlhead99 wrote: »

The HMRC tax codes are used in the same sort of way by employers and pension provider.

Basically if she is on a 270 code she can get £2700 a year of personal allowance, so you would hope she escapes tax when she pulls £2700 out of the pension.

But

The £2700 tax free would be about 225 a month. Unfortunately she is doing this in Jan, by which point cumulatively at £225 a month (Apr '19, May '19.... Dec '19, Jan '20) she has only built up to £2250 cumulative tax free allowed for the ten months of the year so far.

So when she takes £2700 of taxable income last month, she's taking £450 in excess of what she can have within her personal allowance.

That would get taxed at 20% which is £90. So give or take roundings or whatevers, it would make sense that she has paid £88+ of tax

If she had taken all her money in month 1, she would have paid much more tax. If she took it all towards the end of March, no tax.

Ah, thanks for that explanation. We did it earlier this year, as we were down to the wire last year. For the next tax year I will remember this. Will get her to put the money in to get the tax top up in February and ask to withdraw towards the end of March.

bowlhead99

bioboybill wrote: »

Ah, thanks for that explanation. We did it earlier this year, as we were down to the wire last year. For the next tax year I will remember this. Will get her to put the money in to get the tax top up in February and ask to withdraw towards the end of March.

My mum does an annual contribution / UFPLS withdrawal, but doesn't bother to minimise withholding.

For example, your wife already has cash in her bank account now (we know because she just took a withdrawal that you're telling us about). In two months time it's the start of a new tax year. So she could put her £2880 in then and have the extra £720 tax top up in June and draw out the whole £3600 (£2700 taxable) right away. There would be a tax bill but if they don't have a tax code for her and just charge her basic rate on the lot, she'll still get more back in her hands in June than she put in during April. Then in April 2021 she can collect that few hundred pounds of overpaid tax once the tax year is done.

Your way of doing it she needs a tax code, needs to wait until Feb '21, needs to race to withdraw it before the tax year runs out. She could already be enjoying some of the 'profits' of the 20/21 exercise a few months from now if she wasn't hung up about minimising withholding. Claiming back the withheld shortfall is a pretty easy process.

nxdmsandkaskdjaqd

Based on some of the recent comments. When is the best time to pay £2880 in to a SIPP such that you overcome emergency tax coding when you withdraw the £2880 plus the Tax Mans contribution of £720. Does about 6 weeks before the end of the tax year sound about right?

Account with HL if that helps.

Dazed_and_confused

If it is your first withdrawal you cannot overcome the emergency tax code. You can always withdraw less than £1,042 taxable income as a first payment which means no tax would be deducted.

If it isn't your first withdrawal then it will depend on what tax code is allocated to your pension with Hargreaves Lansdown