Non working pension small pot

cdbe11

Hi, I'm 48, not working (househusband). I have some rental income so am (just about, to the tune of £300 last year) a basic rate tax payer.

I have read that regardless of this I can put up to £3600 a year into a pension(s) and get 20% tax relief ? I've also been reading about small pension pots.

My question is: if I sell my rental properties when I reach 55, I will no longer have any income - does this mean that I can cash in my pension (s) and get the first 25% tax free and the remaining £7,500 also tax free via my personal allowance?

If this is vaguely correct can I do it three times in three successive years up to a total value of £30,000? Would it have to be 3 separate pensions of (no more than) £10,000 each?

If this is possible is there a particular sort of pension I should be looking at? I guess my main "gain" will be the tax relief I'll get when I put the money in, rather than any actual return.

I have a frozen civil service pension of £11,000 a year payable at 60 if that makes any difference.

Thanks for any advice/suggestions.

Dox

You can put £2,880 into a personal pension and the provider claims basic rate tax relief on your behalf and adds this to the 'pot' to bring it up to £3,600.

You can do this once a year, every year even if you have no earned/taxable income.

At 55 (currently - age may increase in future) you can cash in some or all of your personal pensions. The first 25% of each (doesn't have to be only 3) will be tax free, and the remaining 75% will be taxed at your marginal rate. If you have the whole of your personal allowance available in the year you 'cash in', it will all be tax free up to your personal allowance. Might be better to spread the cashing in over several years to get the benefit of any personal allowance which would otherwise be unused.

Small pots are different from 'flexible access'!

A low-charging SIPP seems your best bet, because it gives flexibility to access/drawdown in a way that a stakeholder pension would not. Have a browse through previous questions on this board to see what others have used/recommended.

Unlikely your civil service pension is frozen; it will be revaluing from the time you left active membership to the time you come to draw your benefits from it.

xylophone

I have a frozen civil service pension of £11,000 a year payable at 60 if that makes any difference.

When did you defer your Civil Service Pension?

https://www.civilservicepensionscheme.org.uk/members/deferred/

You should be able to find the appropriate information above concerning revaluation in deferment and increases in payment.

Have you obtained a new state pension forecast?

https://www.gov.uk/check-state-pension


Your rental income is unlikely to count as "relevant income" for pension purposes (rental income is generally not relevant earnings but some rental income may be included if it is in respect of UK or EEA furnished holiday lettings business).


https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

You may still contribute up to a net £2880 to a personal pension and the provider will claim tax relief of £720.

It may be worth having a look here.


https://www.hl.co.uk/partners/search/sipp?theSource=PCHLS&Override=0&adg=G+HLBS+HLS&gclid=EAIaIQobChMImc2ysoH94AIVYbXtCh120wU9EAAYASAAEgIfXvD_BwE

cdbe11

Thanks, I don't think I was really aware of the flexible pensions (last time I looked into this a few years ago it was all about small pots). So I can put in £3600 a year (gross) and and withdraw it it anytime after I'm 55? Eg if my personal allowance is £12,000 I could withdraw £16,000 tax free?

I know I'm limited to £3,600 because the rental income isn't counted for pensions.

Sorry, my CS pension is deferred (not frozen - it was the term we used at the time) and is uplifted by CPI annually.

I should just scrape in with 35 years NI pension contributions (work plus 8 years child credits) less the effect of 20 years contracted out.

Thanks both for the steer to Sipps - I will start looking into them.

bluenose1

The reason it would be in small pot ie less than £10k is so that you do not lose ability to contribute more than £4K to Pension in subsequent years. As you may not want to contribute more than £4K could be in one pot.
Yes you can withdraw 25% tax free and the rest will be tax free up to your personal allowance.

I also have a deferred civil service pension and after doing the sums have decided to take it at 55. By my reckoning i will be mid 70s before worse off and by then SP will have started. Worth it to retire 5 years early for me.

xylophone

Once you reach age 55 (or whatever minimum age may be), you will be able to access the pension.

If you have eg, £20,000 in the pot, you can take £5000 as a tax free lump sum - the balance would be taxed as income in the year of receipt.

You might choose to take only as much as would fit within your personal allowance.

Other options here

https://www.pensionwise.gov.uk/en/pension-pot-options

AnotherJoe

cdbe11 wrote: »

Hi, I'm 48, not working (househusband). I have some rental income so am (just about, to the tune of £300 last year) a basic rate tax payer.

I have read that regardless of this I can put up to £3600 a year into a pension(s) and get 20% tax relief ? I've also been reading about small pension pots.

My question is: if I sell my rental properties when I reach 55, I will no longer have any income - does this mean that I can cash in my pension (s) and get the first 25% tax free and the remaining £7,500 also tax free via my personal allowance?

If this is vaguely correct can I do it three times in three successive years up to a total value of £30,000? Would it have to be 3 separate pensions of (no more than) £10,000 each?

If this is possible is there a particular sort of pension I should be looking at? I guess my main "gain" will be the tax relief I'll get when I put the money in, rather than any actual return.

I have a frozen civil service pension of £11,000 a year payable at 60 if that makes any difference.

Thanks for any advice/suggestions.

If you are a basic rate taxpayer you can put a lot more than £3,600 in, you can put in 80% of your income.

AlanP_2

AnotherJoe wrote: »

If you are a basic rate taxpayer you can put a lot more than £3,600 in, you can put in 80% of your income.

Pensions are related to relevant earnings as explained above. Rental income is taxable but not relevant.

AnotherJoe

AlanP wrote: »

Pensions are related to relevant earnings as explained above. Rental income is taxable but not relevant.

I stand corrected. So, for the avoidance of doubt, if you are a professional landlord, that's your "job", rental income or profits don't count towards pension income? Wow. Every day is an learning opportunity.

xylophone

I stand corrected. So, for the avoidance of doubt, if you are a professional landlord, that's your "job", rental income or profits don't count towards pension income? Wow. Every day is an learning opportunity.

I think you may have misunderstood.

Except in certain circumstances (see above), rental income does not count as "relevant income" for the purposes of tax relievable pension contributions.

It is, however, taxable income for the purposes of income tax.

Similarly, pension income is not relevant income for the purposes of tax relievable pension contributions but is still taxable income.

However, even if you have no relevant income, you can still (up to age 75), make a net payment into a personal pension of up to £2880 per tax year and receive tax relief of £720.

Pension_Geek

cdbe11 wrote: »

Thanks, I don't think I was really aware of the flexible pensions (last time I looked into this a few years ago it was all about small pots). So I can put in £3600 a year (gross) and and withdraw it it anytime after I'm 55? Eg if my personal allowance is £12,000 I could withdraw £16,000 tax free?

Yes, but, you only have your full personal allowance at month 12 of the tax year. In month 1 (so from April 7th onward) you will have £1000 of personal allowance.

Your pension company will need to have tax code for you and not be using 'Month 1' tax for you to be able to get the full allowance out with no tax at source in Month 12 (March). One possible way of doing it, if your pension provider allows is to take a nominal monthly income of say £10 then ask for a one off withdrawal of the remaining amount.

Or if you are happy to, wait and get the tax rebate form HMRC.