Pausing SP

Gers

This morning I read an article in The Times about pausing SP in order to receive increased payments later.

At the moment my OP is taxed and my SP has no deductions. There is no other income (apart from savings interest). If I paused my SP I assume that my OP would no longer be taxed - is my assumption correct?

Thanks

Dazed_and_confused

No.

As your OP (occupational pension?) is £20k you would still have a fair bit of tax to pay.

Gers

Dazed_and_confused wrote: »

No.

As your OP (occupational pension?) is £20k you would still have a fair bit of tax to pay.

My OP is not £20,000.

BoGoF

Well how much is it then?

molerat

Your income will be reduced and you will pay tax according to that income. Without numbers who knows whether you will pay tax or not. If your OP is permanent you are likely just delaying the tax liability. The different rules over pre and post 2016 pension deferment also need to be noted.

Gers

Thanks, perhaps I worded my question too loosely!

What I meant was...could I then allocate all my tax personal allowance to my SP? Would my tax liability for both pensions accumulate? Surely not.

The article in The Times fully explains the differences between pre and post 2016 rules. I am post 2016.

I understand that I would probably still pay tax and, that once I restart the SP more tax would be payable.

molerat

Your tax allowance is allocated to income you are actually receiving. The SP you are receiving is deducted from that allowance effectively taxing it, you cannot allocate your tax allowance directly to it and it cannot be taxed at source. If your SP is your only income and it is above your tax allowance then it is taxed through self assessment. The downside of deferring a post 2016 pension is that there is no lump sum, which was a good way of avoiding tax under the pre 2016 scheme, and if you die there is nothing to leave to your relatives. These days the main reason for deferring the SP is to avoid higher rate tax if employed past SP age.

jamesd

Gers wrote: »

At the moment my OP is taxed and my SP has no deductions. There is no other income (apart from savings interest). If I paused my SP I assume that my OP would no longer be taxed - is my assumption correct?

It will remain taxable income but no tax will be due if the income is no more than £12,500.

Depending on the amounts you might be able to get the combined income from both to 12,500 or less in the current tax year. Since the personal allowance is use it or lose it, some might like to continue taking the state pension for just long enough to use it all in the year that pausing is started.

Assuming you're under 75 remember to take the free money from paying 2,880 into a personal pension and eventually taking 3,600 out. You get this tax gain evven if you pay no tax.

Gers

jamesd wrote: »

It will remain taxable income but no tax will be due if the income is no more than £12,500.

Depending on the amounts you might be able to get the combined income from both to 12,500 or less in the current tax year. Since the personal allowance is use it or lose it, some might like to continue taking the state pension for just long enough to use it all in the year that pausing is started.

Thanks for this clear explanation. I am only considering doing this so will need to do some more investigations, however you have really helped.

jamesd wrote: »

Assuming you're under 75 remember to take the free money from paying 2,880 into a personal pension and eventually taking 3,600 out. You get this tax gain evven if you pay no tax.

I have seen the very long thread about this though never really understood it as the conversation got more and more fractured.

Could you please give me another clear explanation please as this is also worth considering!

xylophone

The arrangement to which James refers works best for those pensioners who have a total income below the personal allowance.

For example, let's take a pensioner aged under 75 whose only income is a state pension of £8000 a year and a tiny OP of £1500 a year.

She pays no tax.

She pays £2880 into a personal pension and receives tax relief of £720 (even though she didn't pay any tax in the first place).

She takes a tax free PCLS of £900 and the balance of £2700 - this makes her pension income £12,200 which is still under her personal allowance.

Thus she has received a free £720 - worth having!

The benefit for a standard rate tax payer (£180) is much less but better owt than nowt!

Gers

xylophone wrote: »

The arrangement to which James refers works best for those pensioners who have a total income below the personal allowance.

For example, let's take a pensioner aged under 75 whose only income is a state pension of £8000 a year and a tiny OP of £1500 a year.

She pays no tax.

She pays £2880 into a personal pension and receives tax relief of £720 (even though she didn't pay any tax in the first place).

She takes a tax free PCLS of £900 and the balance of £2700 - this makes her pension income £12,200 which is still under her personal allowance.

Thus she has received a free £720 - worth having!

The benefit for a standard rate tax payer (£180) is much less but better owt than nowt!

Many thanks, very clear and very useful. My OP is more than the personal allowance so that rules out this ploy!