pension contribution when not earning

kidmugsy

caveman38 wrote: »

One thing confuses me from this example is why bother increasing the total value of the SIPP. Once the OP's parents reach SPA (in a few years) with SP, annuity and then drawing down the SIPP, they will be way over the tax threshold. Then apart from TFLS, all the SIPP will be taxable and IR will claw back the monies given by to them on their £2,880 contributions.

You miss at least three points in addition to the IHT point.

(i) We don't know how big their SIPPs are. Maybe they need to replenish them if they are to keep drawing down before they get the new income.

(ii) If one dies before 75 the other can drawdown the deceased's SIPP tax-free.

(iii) And if not, at least they'll gain by the 25% TFLS on the new contributions.

itwasntme001

I have some further questions actually following discussions with my parents:


- If one of my parents starts to earn by working a part time job, say earning £5k a year, can this have tax relief (i.e. i think contribute 4k and HMRC gives 1k)? Or is tax relief only on anything over the personal allowance IF earnings are over £3600?


- Can my parents withdraw money from their SIPP whenever they like and how ever much they want to? The plan is to leave the SIPP largely untouched but was wondering once you start withdrawing it has to be withdrawn even if passed onto me and my sibling?


- Does the TFLS apply to 25% of the amount whenever withdrawn? Or is it fixed at the start of withdrawing the SIPP?



thank you.

xylophone

- If one of my parents starts to earn by working a part time job, say earning £5k a year, can this have tax relief (i.e. i think contribute 4k and HMRC gives 1k)? Or is tax relief only on anything over the personal allowance IF earnings are over £3600?

See post 8 above.

- Can my parents withdraw money from their SIPP whenever they like and how ever much they want to? The plan is to leave the SIPP largely untouched but was wondering once you start withdrawing it has to be withdrawn even if passed onto me and my sibling?

Yes.

- Does the TFLS apply to 25% of the amount whenever withdrawn? Or is it fixed at the start of withdrawing the SIPP?

The person could choose to take the 25% tax free lump sum from the whole of the amount in the pension and then variable amounts after that which would be subject to tax at the appropriate rate thereafter. He might choose to take just the PCLS and leave the rest within the pension.


He could choose to continue to contribute to the SIPP - this would create another "section" within the SIPP - he could choose to crystallise this "section", take the 25% PCLS and then taxable income (or no income) from the balance.