is this possible ... and legal

elantan

Hi all,

as previously noted I'm starting to look at IHT which leads me onto tax ( or the other way around) whilst working out the £3k a year gift and its tax implications I started re thinking about ways in which we could sort ourselves our better tax wise for retirement. this is something we will discuss with our IFA but I wanted to get opinions, suggestions etc first so that we can have a better handle on the situation before going for our meeting.

We are a wee bit away from retirement just now ( husband 52, me 47) but we intend on retiring at 60,55 so less than 8 years, husband has a good pension which will mean he will be liable to pay tax on retirement at 60, my pension will be small in comparison ( about £150k)

I was wondering if it is possible that when husband reaches 55 he starts drawing down on his pension gifts it to me and I can then put it into my pension ( thus cancelling out the tax implications) so that when we do retire 5 years later and do eventually draw down on our pensions for good husband will pay less tax as he will have transferred ( approx) £60k to me ?

we plan on drawing down roughly 4% ( I know that's a bit too high to draw down in todays money ) I will only have £6k without husbands gift per year, with gift I would have roughly £8k a year, still not enough to pay tax on, husband will still have a pension of roughly £20k a year instead of £22k a year so we would still have the same money coming in but be paying less tax on £2k a year, roughly £400 a year saving.

Is this possible and legal ?

greatkingrat

Is your husband paying or close to paying 40% tax? If so there would be no benefit as he would pay 40% on the withdrawal and you would only gain 20% tax relief when paying it back in.

elantan

no he is still within the 20% tax bracket, we would ensure that any draw down would keep him in it also

p00hsticks

A couple of options that spring to mind....


You don't mention your current position, but as your husband appears to be the higher earner (?) does he have any earned income spare to hand now that he could pay into pension (e.g SIPP) for you now ?


When you retire, if you are not using all your tax allowance you can use the Marriage Allowance to effectively gift some of it to your husband

Tom99

elantan wrote: »

I was wondering if it is possible that when husband reaches 55 he starts drawing down on his pension gifts it to me and I can then put it into my pension ( thus cancelling out the tax implications) so that when we do retire 5 years later and do eventually draw down on our pensions for good husband will pay less tax as he will have transferred ( approx) £60k to me

Will you still have enough earnings to cover your pension contribution?
Say for each £10,000 he withdraws, 25% tax free 20% tax on rest, a net £8,500. You put in that net £8,500 which is grossed up to £10,625?

elantan

p00hsticks wrote: »

A couple of options that spring to mind....


You don't mention your current position, but as your husband appears to be the higher earner (?) does he have any earned income spare to hand now that he could pay into pension (e.g SIPP) for you now ?


When you retire, if you are not using all your tax allowance you can use the Marriage Allowance to effectively gift some of it to your husband

Thanks for the reply, I do currently pay 500 a month into a sipp this is to be in addition to this, you are ofcourse correct my husband is the main earner in our household:)


ahhh the marriage gift allowance I had forgotten about that thank you, we used that when I was a student as I earned very very little at the time <£5k a year, that would effectively give us another £200 a year tax saving... thanks I had forgotten all about it

elantan

Tom99 wrote: »

Will you still have enough earnings to cover your pension contribution?
Say for each £10,000 he withdraws, 25% tax free 20% tax on rest, a net £8,500. You put in that net £8,500 which is grossed up to £10,625?

that's the kinda plan, add that to my current £6k of payments into my sipp and I'm still approx £12k less in sipp contributions than I earn