We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Not sure what to do - help required
Arthurbear0612
Posts: 8 Forumite
Hello I'm new
I wonder is someone knowledgeable about Self Employed paying into a Private Pension Scheme can help?
I am a sole trader 59 year old female on a new business start up on Universal Credit (granted August this year), so I am not subject to the Minimum Income Floor until August next year which is great for me whilst I get my business up and running. In the meantime, I should like to pay into a pension but can't do that from my current income from clients. But I have been given access potentially to a large lump sum of money which if kept as savings would immediately disqualify me for UC entirely. So keeping it as savings is no good at all - even if invested for a later date. I don't have this money presently. but will do.
My plan is this: I want to get it sent across and then immediately invest the lot into a Pension scheme not spend it now or even invest it as savings in an ISA or shares etc. because if I were to do that I would still be over the threshhold for claiming UC at a critical time when I need their input to help me get my business off the ground. I don't want to just leave UC and end up spending it to keep roof over head. I have very little pension as it is, and what to make good use of this money.
I did approach UC for advice to check the rules and have been told by UC that I can invest in a pension whilst on UC and that won't count as income, so I am OK legally to do that. What I also need to know, though, is how best to invest the entire amount coming to me without it unsettling my claim or reducing it. To do that would be silly.
I am inclined to pay it all as a lump sum into a pension based on this year's income (present tax year) and backdating other pension contribution years for the previous three tax years, which I never paid into at all (I do have another pension plan I no longer pay into elsewhere, so do qualify), which would pretty much swallow up the entire amount coming to me for investing into a pension. I would then get tax relief on all of it, not just this tax year's, based on unused contributions brought forward from previous years that I was told is always based on this year's net income, not the net income in the backdated years in question. That seems a good idea to me. Otherwise, I could be throwing away a tidy sum in Government contributions at 20% on all four years.
The problem is that I don't know what my income is going to be this year. As a new business start up I have no way of telling what my net earnings will be. It's not likely to be all that high, but with the other three years taken into account - at what is an estimated net profit amount - it could still utilise the entire sum for investing into a pension.
Therefore, if I were to pay into a SIPP or a managed fund, and get the tax relief on the entire pension contributions for this and the previous three tax years based on the same net income as this year, what should I say my income will be for this year when I have no way of telling? We are only into a few months of the current tax year and I can't even rely upon past yearly earnings as SE when I was doing something entirely different.
Clearly, I can't get the money paid over, hold off paying into a pension until I do know - which won't be until March next year (near tax year end) because it will mean this sum will be sitting in an account, perfectly accessible as savings, for UC purposes, and therefore I would need to declare it to UC that I have it as savings. This would then disqualify me from my claim. The whole point of claiming UC is that you don't have sufficient income or savings to access that would take you over £16k. The disqualifying threshhold. Anything between £6k and £16k is subject to a reduced amount of support on a sliding scale. At 59 I don't want this sum as spending money now, I want to use it later on when I am likely to need it most.
Can anyone advise me on what best to do without breaking the law on being a UC claimant? Should I just get the money transferred and then pay into a pension right away and guess what my income will be this year, and make adjustments later on? Is that allowed?
I find the whole SE pension contribution rules ridiculous as it is, but being a UC claimant adds another complication dimension to the whole issue - when you come into a sizeable lump sum - but I am loathe to just come off UC, whilst they are supporting my start up whilst I learn the ropes and get new clients in without the MIF applying to me, and then use a lot of this money to just pay my bills, which is what I will be doing. That way I would not even be investing it where I like (rather than just a pension) without these rules applying to me. I would just be squandering it instead rendering that extra bit of freedom to invest where I like without consequences utterly benign.
For respondees: I am grateful for any useful well qualified support and help you can give me. For that reason, I am not interested in flippant envy induced unehelpful remarks (e.g., you should think yourself lucky...) or something that deviates from the plan I have in mind for the money - to invest now and use it for old age. Therefore, responses like (1) go and spend it and enjoy it (2) don't tell UC and just invest in whatever you like (3) see an IFA (don't think they can tell me anything I don't already know and don't want to fork out for the advice either).
Many thanks
I wonder is someone knowledgeable about Self Employed paying into a Private Pension Scheme can help?
I am a sole trader 59 year old female on a new business start up on Universal Credit (granted August this year), so I am not subject to the Minimum Income Floor until August next year which is great for me whilst I get my business up and running. In the meantime, I should like to pay into a pension but can't do that from my current income from clients. But I have been given access potentially to a large lump sum of money which if kept as savings would immediately disqualify me for UC entirely. So keeping it as savings is no good at all - even if invested for a later date. I don't have this money presently. but will do.
My plan is this: I want to get it sent across and then immediately invest the lot into a Pension scheme not spend it now or even invest it as savings in an ISA or shares etc. because if I were to do that I would still be over the threshhold for claiming UC at a critical time when I need their input to help me get my business off the ground. I don't want to just leave UC and end up spending it to keep roof over head. I have very little pension as it is, and what to make good use of this money.
I did approach UC for advice to check the rules and have been told by UC that I can invest in a pension whilst on UC and that won't count as income, so I am OK legally to do that. What I also need to know, though, is how best to invest the entire amount coming to me without it unsettling my claim or reducing it. To do that would be silly.
I am inclined to pay it all as a lump sum into a pension based on this year's income (present tax year) and backdating other pension contribution years for the previous three tax years, which I never paid into at all (I do have another pension plan I no longer pay into elsewhere, so do qualify), which would pretty much swallow up the entire amount coming to me for investing into a pension. I would then get tax relief on all of it, not just this tax year's, based on unused contributions brought forward from previous years that I was told is always based on this year's net income, not the net income in the backdated years in question. That seems a good idea to me. Otherwise, I could be throwing away a tidy sum in Government contributions at 20% on all four years.
The problem is that I don't know what my income is going to be this year. As a new business start up I have no way of telling what my net earnings will be. It's not likely to be all that high, but with the other three years taken into account - at what is an estimated net profit amount - it could still utilise the entire sum for investing into a pension.
Therefore, if I were to pay into a SIPP or a managed fund, and get the tax relief on the entire pension contributions for this and the previous three tax years based on the same net income as this year, what should I say my income will be for this year when I have no way of telling? We are only into a few months of the current tax year and I can't even rely upon past yearly earnings as SE when I was doing something entirely different.
Clearly, I can't get the money paid over, hold off paying into a pension until I do know - which won't be until March next year (near tax year end) because it will mean this sum will be sitting in an account, perfectly accessible as savings, for UC purposes, and therefore I would need to declare it to UC that I have it as savings. This would then disqualify me from my claim. The whole point of claiming UC is that you don't have sufficient income or savings to access that would take you over £16k. The disqualifying threshhold. Anything between £6k and £16k is subject to a reduced amount of support on a sliding scale. At 59 I don't want this sum as spending money now, I want to use it later on when I am likely to need it most.
Can anyone advise me on what best to do without breaking the law on being a UC claimant? Should I just get the money transferred and then pay into a pension right away and guess what my income will be this year, and make adjustments later on? Is that allowed?
I find the whole SE pension contribution rules ridiculous as it is, but being a UC claimant adds another complication dimension to the whole issue - when you come into a sizeable lump sum - but I am loathe to just come off UC, whilst they are supporting my start up whilst I learn the ropes and get new clients in without the MIF applying to me, and then use a lot of this money to just pay my bills, which is what I will be doing. That way I would not even be investing it where I like (rather than just a pension) without these rules applying to me. I would just be squandering it instead rendering that extra bit of freedom to invest where I like without consequences utterly benign.
For respondees: I am grateful for any useful well qualified support and help you can give me. For that reason, I am not interested in flippant envy induced unehelpful remarks (e.g., you should think yourself lucky...) or something that deviates from the plan I have in mind for the money - to invest now and use it for old age. Therefore, responses like (1) go and spend it and enjoy it (2) don't tell UC and just invest in whatever you like (3) see an IFA (don't think they can tell me anything I don't already know and don't want to fork out for the advice either).
Many thanks
0
Comments
-
I think you are a bit confused about the three years and 'backdating ' There two separate issues:
First is that there is a maximum that you can contribute to a pension in one financial year and get tax relief . This is £40K and includes the tax relief. If you do not use all this £40K it can be carried forward for up to three years . So in theory you could not contribute for three years and then contribute £160K .
However you can not contribute in any one year more than you earn regardless of the above ,if you want tax relief , so you can not backdate your contributions.
What you could do is contribute more than you earn but without any tax relief. This is normally not a good idea but yours could be a special case .
One issue is that the pension provider would contribute tax relief automatically , so you might have to repay it and could get a bit messy.0 -
No I don't think I am confused at all,
An IFA told me that provided I had a pension already (which I do - although contribution dormant at present, although still being invested) the rules are:
1. You work out what your net profit income will be for the present tax year. E.g., £10K
2. You then can invest up to that amount in that year (e.g., £10k and then carry forward unusued contributions based on this years income for three years, e..g, £30K, making it £40k in total.
I would then get £40k worth of tax contributions from the Government.
The problem is the timing of when I do this and what I tell the pension provider why my present income will be for this tax year when I don't know what it will be, making the past three years contributions also difficult to work out when it they are not based on the net profit I made for those past tax years.0 -
Oh, yes you are!Arthurbear0612 wrote: »No I don't think I am confused at all,This is a system account and does not represent a real person. To contact the Forum Team email forumteam@moneysavingexpert.com0 -
No I don't think I am confused at all,
I fear that you are.
https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward0 -
I believe you are confused. Like Albermarle said, you can pay in up to 100% of your earnings (not net profit) in any one year. If you earn more than 40,000 in the current year, you can carry forward up to 40,000 allowance from previous three tax years. So if you earn 10,000 in this tax year, the max you can pay in is 10,000. However, if you earned 50,000 this year, you could pay in 50,000 provided you had unused allowance of 10,000 from the previous years.
What you can't do it make backdated pension contributions for previous years, which is what you seem to be intending to do.
So if you are going to earn less this year than the lump sum you have access to, it wouldn't be wise to pay it all into a pension. You can still do it btw, but as I understand it it you lose tax relief on contributions over your allowance and also have to pay an annual allowance charge as well.
If you don't know how much you are going to earn this year, you can still make a lump sum investment early in the year based on what you think you are going to earn, but if you earn less than that then you would lose some tax relief and have to pay an annual allowance charge on the excess.
I used to have variable pay and made large one-off pension contributions. I always did them late in the tax year once I had a pretty good idea what my pay for the year was going to be.
Bottom line - if this lump sum exceeds your potential income for this year, you won't be able to pay it into a pension without attracting the attention of the taxman. How this affects UC I have no idea and you really need to speak with people that understand UC.0 -
This is also not correct. The government, or HMRC to be precise, does not match your contributions Pound for Pound . They add 25% or 50% depending on your current tax rate .I would then get £40k worth of tax contributions from the Government
If you paid for the IFA's advice , I suggest you go back for a refund !0 -
I never said that I would get pound for pound relief. As it is, the rules are hopelessly complicated and can be interpreted all sorts of ways to the uninitiated.
From what I am starting to understand now, from further reading, is that the carry forward situation up to three years really only benefits those who pay the maximum allowance in their current tax year (£40k) because they earned that much anyway, and therefore, if they haven't had the allowance in the previous three years because they didn't earn that much before, they can claim the difference and get 20% on that.
For people like me, on a much lower start up business income, it seems like I will only get relief on the amount I earn this tax year and if I pay any more into a pension - as a lump sum from elsewhere, attracting further tax relief by default, that relief will be withdrawn in the form of a Annual Allowance Charge. So I gain nothing at all from tax relief and just benefit from the investment growth only (assuming there is growth).
It seems the best way forward is to ensure the money is not paid to me until I need it and then have it drip fed to me over future years when I know how much I will be earning each year so I can continue to accumulate tax relief on what I pay in. I'm not even sure that is allowable under the UC rules.0 -
Under UC, if you receive a large lump sum (I assume you are talking greater than £16K), then you must immediately declare that you have it and (unless it is disregarded) your claim for UC will close as you are no longer entitled.
If you were then to pay an amount of the lump sum into a pension (or otherwise dispose of it for the purposes of claiming UC), this would be regarded as deprivation of capital and you would still be treated as having the capital by UC and would still not be eligible to claim.
So to simplify things, you can remove UC from your equation as you will no longer be entitled to claim UC. What you are asking for is advice on how to commit fraud. DWP will spot the money when you receive it and will catch up with you so you will need to declare it and stop claiming UC.Our green credentials: 12kW Samsung ASHP for heating, 7.2kWp Solar (South facing), Tesla Powerwall 3 (13.5kWh), Net exporter0 -
Try this
https://www.hl.co.uk/pensions/contributions/carry-forward-rule
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/pension-contributions-the-basics/
And remember that the allowance figures are gross.
If you earned £40,000 and wanted to contribute the maximum to your personal pension, you would pay the pension provider £32,000 and the provider would claim £8000 from HMRC and add it to your pot.0 -
I don't have this money presently. but will do.
Is this money properly due and payable to you?
Be careful of DoC rules.
https://www.entitledto.co.uk/help/Savings-and-other-capital-overview-Universal-Credit0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 352.3K Banking & Borrowing
- 253.6K Reduce Debt & Boost Income
- 454.3K Spending & Discounts
- 245.3K Work, Benefits & Business
- 601.1K Mortgages, Homes & Bills
- 177.6K Life & Family
- 259.2K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 37.7K Read-Only Boards