Is a pension bought with ones own money taxable

alankearn

Is a pension bought with my wifes own money from her bank account taxable at the same rate as my pension that was built up over a number of years with pension contributions free of tax.


Thanks

Mnd

No, she got tax relief on the way in, so if any tax is due on the way out then it counts as taxable income

EdSwippet

alankearn wrote: »

Is a pension bought with my wifes own money from her bank account taxable at the same rate as my pension that was built up over a number of years with pension contributions free of tax.

It sounds like you are asking about 'Purchased Life Annuities'. If so, more at this link. The tl;dr for tax is that payments from a PLA are split into two parts -- a non-taxable return of capital portion, and a taxable interest portion.

alankearn

This may make my question a little clearer


We have both had pensions since 1998 mine was bought after being self employed over a period of about 25 years it is fully transfereable with a 3% increase each year to my wife and at present it returns £351 per month.
My wifes pension bought with £30,000 is £201 a month with rpi increase each year and fully transferable to me.
At present our pensions are split and we have them paid without tax deducted because we are below the threshhold where we have to pay any tax, consequently we don't have to apply for a tax rebate.
As it stands we have two pensions each but if I die she would have three of the pensions and these would take her over the the tax threshhold and this would mean she would have to have the private pensions taxed at source and then reclaim some of the deducted tax at a later date.
At a guess the three pensions would take about £1000 over the the threshold of having to pay tax, my wife is 81 years old, we don't have any family that could help her with a tax problem
I was hoping that if the £30,00 pension she bought was taxed at a lot lower rate she would be below the tax threshold and then be able to have the private pensions paid with no tax deducted so saving her the problem of having to recalaim some of the deducted tax.

Hope viewers cam make sense of what I have posted

Thanks

Dazed_and_confused

With the greatest respect your latest post is quite confusing. Are these joint pensions (unlikely) or do you mean for example if you die your £351 would be payable to your wife. And vice versa with your wife's £201?

If she went over the tax threshold then why do you think she would be entitled to claim tax back?

Do you get P60's from the pension companies each year showing the taxable amount paid?

Are the other pensions you mention in passing (we have two pensions each) State Retirement pensions or something else?

Tax is all about the detail and I'm afraid there's a lot missing or somewhat opaque at the moment.

xylophone

You are now 86 years old. (post 14) https://forums.moneysavingexpert.com/discussion/comment/66895328#Comment_66895328

You receive a State Pension.

You receive a private pension of £351 a month.

Your wife is 81 years old.

She receives a State Pension.

She receives a private pension of £201 a month.

In the event of either of you predeceasing the other, the survivor would be entitled to inherit the private pension in the same amount and on the same terms?


You should also see https://www.savvywoman.co.uk/2012/07/what-happens-to-your-state-pension-when-you-die/

Should your wife be widowed, it is possible that her state pension would increase - see above.

If her State pension plus private pensions take her over the tax free personal allowance then she will pay some tax.

xylophone

https://www.litrg.org.uk/

Above might offer your wife some assistance in the event of your death.

You mention that she is very internet savvy!

kingstreet

As Ed said, if she purchased an annuity using her own non-pension plan sourced funds, she bought a purchased life annuity which is not taxed the same way as a pension annuity.

Part of the "income" is deemed return of capital and isn't taxable, while some is deemed interest and is.

At the time the annuity was purchased, she should have been sent a PLA1 form by the insurer (now a PLA6 I believe) for the correct tax deduction.

alankearn

Dazed_and_confused wrote: »

With the greatest respect your latest post is quite confusing. Are these joint pensions (unlikely) or do you mean for example if you die your £351 would be payable to your wife. And vice versa with your wife's £201?

If she went over the tax threshold then why do you think she would be entitled to claim tax back?

Do you get P60's from the pension companies each year showing the taxable amount paid?

Are the other pensions you mention in passing (we have two pensions each) State Retirement pensions or something else?

Tax is all about the detail and I'm afraid there's a lot missing or somewhat opaque at the moment.

Explanation of this part
We have both had pensions since 1998 mine was bought after being self employed over a period of about 25 years it is fully transfereable with a 3% increase each year to my wife and at present it returns £351 per month.

I have a state pension plus a private pension fromm Prudential that on my death is payable
to my wife

---

This part
My wifes pension bought with £30,000 is £201 a month with rpi increase each year and fully transferable to me.

My wife has a state Pension plus a private pension from what was Equitable Life now Canada Life that is payable to me on her death
She paid for this pension out out of her money in the bank that had been taxed before she had earned it before putting it in the bank.

---

The money I paid into my pension over about 25 years was tax free so I would expect to pay the applicable rate of tax on it when I started drawing the pension.

My wife paid for her private pension out of own pocket, money that had previously been taxed when she earned it.

---

Based on this tax year
If she survives me she will have her own state pension, her own private Canada Life pension and my Prudential pension this will total about £13,000 and as this is above £11850 allowances for this tax I think she will have to have the 2 private pensions taxed at source

My passed on private Prudential pension to my wife will be taxed 20% at source.
My wifes Canada Life pension which was bought with her lump sum payment I suspect will be taxed at 20% when I suspect it should be a lot less and if this is true she will have to make a income tax rebate claim.

From both pension providers the only correspondence we have received is a list of the monthly payments they have made to us over the previous year.
We have had no correspondence from the tax office for the last few years

The bottom line is I am trying to see if there is a way of my wife not having to make income tax reclaims

PS its not only you I am confusing I think I am cofusing myself


LOL

Dazed_and_confused

If these are PAYE pensions (you could look at yours and your wife's personal tax accounts on gov.uk to see what each company is sending to HMRC each month) then there might a short term glitch upon the death of one person but once that is resolved and the correct tax codes applied it no subsequent claim should be necessary.

In reality though it is possible that the pension company might operate the "emergency" tax code which would actually mean no tax was deducted. The current emergency code (1185L) means a payment of up to £988/month can be made before tax needs to be deducted.

There is a therefore a small chance there could be tax owed to HMRC rather than them owing you/your wife.

Dazed_and_confused

And the Personal Allowance is going up to £12,500 from April 2019 which I suspect is a much bigger increase than your pension income will go up so it's getting closer to the point where having all 3 pensions could still be within the Personal Allowance.

Of course the PA might be held at £12,500 going forward but it does usually increase each year.