Minimising Tax on my pensions

kidmugsy

octavian wrote: »

I'm 60 and due to receive my DB pension of ~£15K pa in Q3 2018. I also have a DC pension with Clerical Medical worth about £60K.
I'm currently self-employed working 1 day a week for ~£6K pa and have rental income of ~£2.5K pa.

First your wife: take £2880 from your savings and contribute it into a SIPP for her. Then after 05/04/17 do it again. Once the tax rebates have arrived at the provider she should probably take her 25% TFLS and drawdown as much tax-exposed income as will avoid her paying tax on it. Caution: with one of the best providers, Hargreaves Lansdowne, she'd have to leave £1000 behind to avoid paying a charge for having opened and closed a SIPP so quickly. So you might compare with the pension that Virgin offers.

Then repeat this stunt year after year. You'll notice that it will make her up to £720 p.a. tax-free. As for deferring for a few years: it's an attractive scheme with the old-style pension. (It's rather feeble with the new-style so you may not want to bother with it yourself unless you can contrive a tax advantage.)

Now you: if your earnings this tax year are going to be £6k then I suggest that before the end of the tax year on April 5th you draw on your savings and contribute to a SIPP 0.8 x £6k = £4.8k. In your DC pension I suggest you switch out of whatever funds you are invested in into their lowest risk fund. Then transfer your DC pension into that SIPP too. In about 8 weeks time the provider should have received the £1.2k tax rebate from HMRC and (I assume) your DC pot will be in the SIPP too. So you'll have about £66k there. You might then want to take your TFLS of about £16.5k and replenish your savings. You might also draw down as much tax-exposed income as will avoid you paying tax on it (Personal Allowance - ~£6k pa - ~£2.5k = ~£3k. But see below. That act limits your future contributions to £4k gross p.a. but you're going to be limited to £3,600 gross p.a. once you've no earnings so it scarcely matters. Then you can pursue your idea of deferring your DB pension if the actuarial enhancement is enough to be attractive.

The two of you together: I suggest you consider (i) gifting the rental property to your wife so that the rent is taken tax-free, and (ii) that once you are trying to run down your SIPP you have your wife transfer to you the permitted part of her personal allowance. You could do that with effect for 17/18.

octavian

kidmugsy wrote: »

First your wife: take £2880 from your savings and contribute it into a SIPP for her. Then after 05/04/17 do it again. Once the tax rebates have arrived at the provider she should probably take her 25% TFLS and drawdown as much tax-exposed income as will avoid her paying tax on it. Caution: with one of the best providers, Hargreaves Lansdowne, she'd have to leave £1000 behind to avoid paying a charge for having opened and closed a SIPP so quickly. So you might compare with the pension that Virgin offers.

Then repeat this stunt year after year. You'll notice that it will make her up to £720 p.a. tax-free. As for deferring for a few years: it's an attractive scheme with the old-style pension. (It's rather feeble with the new-style so you may not want to bother with it yourself unless you can contrive a tax advantage.)

Now you: if your earnings this tax year are going to be £6k then I suggest that before the end of the tax year on April 5th you draw on your savings and contribute to a SIPP 0.8 x £6k = £4.8k. In your DC pension I suggest you switch out of whatever funds you are invested in into their lowest risk fund. Then transfer your DC pension into that SIPP too. In about 8 weeks time the provider should have received the £1.2k tax rebate from HMRC and (I assume) your DC pot will be in the SIPP too. So you'll have about £66k there. You might then want to take your TFLS of about £16.5k and replenish your savings. You might also draw down as much tax-exposed income as will avoid you paying tax on it (Personal Allowance - ~£6k pa - ~£2.5k = ~£3k. But see below. That act limits your future contributions to £4k gross p.a. but you're going to be limited to £3,600 gross p.a. once you've no earnings so it scarcely matters. Then you can pursue your idea of deferring your DB pension if the actuarial enhancement is enough to be attractive.

The two of you together: I suggest you consider (i) gifting the rental property to your wife so that the rent is taken tax-free, and (ii) that once you are trying to run down your SIPP you have your wife transfer to you the permitted part of her personal allowance. You could do that with effect for 17/18.

Many thanks for your comprehensive comments.

My wife's now started a SIPP with HL and paid in £2880, so that's her covered for this tax year. We're OK with leaving £1K on the account to avoid closure.

I've done the same and paid in £4.8K. I intend to transfer my DC pension into the SIPP in cash later when the tax has been credited to my HL account and then will probably withdraw a lump sum of 25% to move to my ISA and maybe a bit more up to my remaining personal allowance.

The rental property is shared and my concern is that if I gift my share to my wife it will affect the CGT paid when we sell it in the future. I need to check how that will be affected. But transferring part of her personal allowance to me is a good idea.

I wish I'd known about non-working people being able to receive tax credits on pension contributions before - we've missed a few years now.

kidmugsy

octavian wrote: »

The rental property is shared and my concern is that if I gift my share to my wife it will affect the CGT paid when we sell it in the future.

Good point. I wonder whether you can ameliorate the problem by your selling your half to your wife rather than gifting it?

octavian

kidmugsy wrote: »

Good point. I wonder whether you can ameliorate the problem by your selling your half to your wife rather than gifting it?

That's an interesting idea that I wouldn't have considered. I'll look into it.

Thanks again. :beer: