Moving 10% of personal allowance to spouse in retirement, benefits and possible drawback.

pensionpawn

zagfles said:

pensionpawn said:

zagfles said:

pensionpawn said:

garmeg said:

pensionpawn said:

Dazed_and_C0nfused said:

"you do not pay Income Tax or your income is below your Personal Allowance (usually £12,500)"

There is no such condition in the tax legislation.

The guidance you have linked to is about the benefit of Marriage Allowance, not who can be eligible.

The key thing is that neither the applicant or the recipient can be liable to higher rate tax.  So a couple both earning £40k are eligible for Marriage Allowance but are highly unlikely to benefit financially (as a couple) from applying.

If the applicants only taxable income is say £13,250 pension then they will pay tax on £2,000 of that income (at 19% or 20% depending on where they are resident for tax purposes).  There is no penalty as they are still eligible for Marriage Allowance.

Thanks for that. So if your income is above the 'reduced to 90% of tax allowance' though below the normal threshold for higher rate tax, you just pay tax at 20% on the excess? The advantage of donating 10% of your tax allowance to a spouse accessing their pension via UFPLS is that it 'magnifies' your combined tax free pension 'income' to £29583 compared to £25000 (2 x £12500). An extra £4583 (18.3%) tax free income pa.

You forgot the lower tax free cash in the non transfer scenario of £12,500 / 3 = £4,166 so you get £16,666 tax free from pension.

If transferred
£11,250+ £13,750x4/3 = £29,583

No transfer
£12,500 + £16,666 = £29,166.

The gain is therefore £417.

This is £1,250 / 3.

Not to be sniffed at, obviously.

Yes, thanks for that! I just frustratingly lost my browser tab about the article which brought my attention to this strategy. Some financial adviser exploring options for maximising tax free pension access and this was exactly the point he was making, the extra £417 pa, not the £4583 I posted in haste (which is mainly the 25% TFLS element). The £417 is the real gain from this approach. Cheers.

The gain is zero. You're just taking more of the tax free portion of the wife's pension now, so there'll be less later. 

If that's what you need it might make it a bit administratively easier than phased drawdown, but there is no magic extra tax free allowance being created.

I agree that you can't take more out of the pot than is in there, unless the pot grows, which of course we all hope it does, and at a decent rate. If the starting amount of the pot, coupled with the growth rate, supports withdrawals at £18333 pa then there is year on year gain. The pot may be smaller when you croke it, however I'm planning a retirement, not an inheritance.

The only benefit of using this method would be if the husband didn't have a big enough pot to utilise his full personal allowance every year over his retirement. And that's what the marriage allowance is designed for.

The wife can take as much of the 25% tax free portion out of the pension as she wants each year, it doesn't have to be in the form of a UFPLS, it can be using phased drawdown where some of the pot is crystallised but not drawn. Transferring the allowance just allows her to take £1250 more in taxable income without getting taxed, but at the same time reduces the amount of taxable income the husband can take without being taxed. 

It's completely neutral for couples where they both have sufficient pension to utilise their own personal allowance.

Why is there no benefit if both husband and wife have large enough pots? The husband could have a pot of £500k and chose to draw down only £11250pa because he transferred 10% of his personal allowance to his wife. The wife could have a £750k pot and draw down £18333 pa. I appreciate what the marriage allowance was designed for, however I'm just investigating other ways it can legally / legitimately be applied. I don't see how this can be viewed as tax neutral if £18333 + £11250 = £29583 (c/f £16667 + £12500 = £29167) can be sustained throughout retirement. It's an extra £417 pa whilst you're still breathing.

Dazed_and_C0nfused

I suspect the no benefit comment was on the basis both individuals were using the same drawdown method.

Whereas in your example the wife is using one method and husband a different option.

And it may not be an issue for everyone but in your example the wife is liable to tax on £1,250 which means her maximum savings starter rate band is reduced from £5,000 to £3,750.

pensionpawn

With a personal allowance of £3600 available until you're 75 I would imagine that any reinvesting of spare cash would initially be back into a SIPP. It would be disrespectful not to accept the offer of an £1440 (2 x £720) each year from the government. The extra £417 (from the method above) could offset some of the £2880 per person.

garmeg

pensionpawn said:

With a personal allowance of £3600 available until you're 75 I would imagine that any reinvesting of spare cash would initially be back into a SIPP. It would be disrespectful not to accept the offer of an £1440 (2 x £720) each year from the government. The extra £417 (from the method above) could offset some of the £2880 per person.

But only a quarter of each £720 can be taken tax free so gain of £180 each. The rest would be taxable.

michaels

pensionpawn said:

zagfles said:

pensionpawn said:

zagfles said:

pensionpawn said:

garmeg said:

pensionpawn said:

Dazed_and_C0nfused said:

"you do not pay Income Tax or your income is below your Personal Allowance (usually £12,500)"

There is no such condition in the tax legislation.

The guidance you have linked to is about the benefit of Marriage Allowance, not who can be eligible.

The key thing is that neither the applicant or the recipient can be liable to higher rate tax.  So a couple both earning £40k are eligible for Marriage Allowance but are highly unlikely to benefit financially (as a couple) from applying.

If the applicants only taxable income is say £13,250 pension then they will pay tax on £2,000 of that income (at 19% or 20% depending on where they are resident for tax purposes).  There is no penalty as they are still eligible for Marriage Allowance.

Thanks for that. So if your income is above the 'reduced to 90% of tax allowance' though below the normal threshold for higher rate tax, you just pay tax at 20% on the excess? The advantage of donating 10% of your tax allowance to a spouse accessing their pension via UFPLS is that it 'magnifies' your combined tax free pension 'income' to £29583 compared to £25000 (2 x £12500). An extra £4583 (18.3%) tax free income pa.

You forgot the lower tax free cash in the non transfer scenario of £12,500 / 3 = £4,166 so you get £16,666 tax free from pension.

If transferred
£11,250+ £13,750x4/3 = £29,583

No transfer
£12,500 + £16,666 = £29,166.

The gain is therefore £417.

This is £1,250 / 3.

Not to be sniffed at, obviously.

Yes, thanks for that! I just frustratingly lost my browser tab about the article which brought my attention to this strategy. Some financial adviser exploring options for maximising tax free pension access and this was exactly the point he was making, the extra £417 pa, not the £4583 I posted in haste (which is mainly the 25% TFLS element). The £417 is the real gain from this approach. Cheers.

The gain is zero. You're just taking more of the tax free portion of the wife's pension now, so there'll be less later. 

If that's what you need it might make it a bit administratively easier than phased drawdown, but there is no magic extra tax free allowance being created.

I agree that you can't take more out of the pot than is in there, unless the pot grows, which of course we all hope it does, and at a decent rate. If the starting amount of the pot, coupled with the growth rate, supports withdrawals at £18333 pa then there is year on year gain. The pot may be smaller when you croke it, however I'm planning a retirement, not an inheritance.

The only benefit of using this method would be if the husband didn't have a big enough pot to utilise his full personal allowance every year over his retirement. And that's what the marriage allowance is designed for.

The wife can take as much of the 25% tax free portion out of the pension as she wants each year, it doesn't have to be in the form of a UFPLS, it can be using phased drawdown where some of the pot is crystallised but not drawn. Transferring the allowance just allows her to take £1250 more in taxable income without getting taxed, but at the same time reduces the amount of taxable income the husband can take without being taxed. 

It's completely neutral for couples where they both have sufficient pension to utilise their own personal allowance.

Why is there no benefit if both husband and wife have large enough pots? The husband could have a pot of £500k and chose to draw down only £11250pa because he transferred 10% of his personal allowance to his wife. The wife could have a £750k pot and draw down £18333 pa. I appreciate what the marriage allowance was designed for, however I'm just investigating other ways it can legally / legitimately be applied. I don't see how this can be viewed as tax neutral if £18333 + £11250 = £29583 (c/f £16667 + £12500 = £29167) can be sustained throughout retirement. It's an extra £417 pa whilst you're still breathing.

Nope, still no tax saving from deciding to draw the TFLS more or less quickly by either partner.

Is this a trolling thread?

zagfles

pensionpawn said:

zagfles said:

pensionpawn said:

zagfles said:

pensionpawn said:

garmeg said:

pensionpawn said:

Dazed_and_C0nfused said:

"you do not pay Income Tax or your income is below your Personal Allowance (usually £12,500)"

There is no such condition in the tax legislation.

The guidance you have linked to is about the benefit of Marriage Allowance, not who can be eligible.

The key thing is that neither the applicant or the recipient can be liable to higher rate tax.  So a couple both earning £40k are eligible for Marriage Allowance but are highly unlikely to benefit financially (as a couple) from applying.

If the applicants only taxable income is say £13,250 pension then they will pay tax on £2,000 of that income (at 19% or 20% depending on where they are resident for tax purposes).  There is no penalty as they are still eligible for Marriage Allowance.

Thanks for that. So if your income is above the 'reduced to 90% of tax allowance' though below the normal threshold for higher rate tax, you just pay tax at 20% on the excess? The advantage of donating 10% of your tax allowance to a spouse accessing their pension via UFPLS is that it 'magnifies' your combined tax free pension 'income' to £29583 compared to £25000 (2 x £12500). An extra £4583 (18.3%) tax free income pa.

You forgot the lower tax free cash in the non transfer scenario of £12,500 / 3 = £4,166 so you get £16,666 tax free from pension.

If transferred
£11,250+ £13,750x4/3 = £29,583

No transfer
£12,500 + £16,666 = £29,166.

The gain is therefore £417.

This is £1,250 / 3.

Not to be sniffed at, obviously.

Yes, thanks for that! I just frustratingly lost my browser tab about the article which brought my attention to this strategy. Some financial adviser exploring options for maximising tax free pension access and this was exactly the point he was making, the extra £417 pa, not the £4583 I posted in haste (which is mainly the 25% TFLS element). The £417 is the real gain from this approach. Cheers.

The gain is zero. You're just taking more of the tax free portion of the wife's pension now, so there'll be less later. 

If that's what you need it might make it a bit administratively easier than phased drawdown, but there is no magic extra tax free allowance being created.

I agree that you can't take more out of the pot than is in there, unless the pot grows, which of course we all hope it does, and at a decent rate. If the starting amount of the pot, coupled with the growth rate, supports withdrawals at £18333 pa then there is year on year gain. The pot may be smaller when you croke it, however I'm planning a retirement, not an inheritance.

The only benefit of using this method would be if the husband didn't have a big enough pot to utilise his full personal allowance every year over his retirement. And that's what the marriage allowance is designed for.

The wife can take as much of the 25% tax free portion out of the pension as she wants each year, it doesn't have to be in the form of a UFPLS, it can be using phased drawdown where some of the pot is crystallised but not drawn. Transferring the allowance just allows her to take £1250 more in taxable income without getting taxed, but at the same time reduces the amount of taxable income the husband can take without being taxed. 

It's completely neutral for couples where they both have sufficient pension to utilise their own personal allowance.

Why is there no benefit if both husband and wife have large enough pots? The husband could have a pot of £500k and chose to draw down only £11250pa because he transferred 10% of his personal allowance to his wife. The wife could have a £750k pot and draw down £18333 pa. I appreciate what the marriage allowance was designed for, however I'm just investigating other ways it can legally / legitimately be applied. I don't see how this can be viewed as tax neutral if £18333 + £11250 = £29583 (c/f £16667 + £12500 = £29167) can be sustained throughout retirement. It's an extra £417 pa whilst you're still breathing.

How many times?

The wife can draw £18333 tax free pa WHETHER OR NOT she's had a marriage allowance transfer.

Without transfer: she takes £16667 UFPLS and crystallises £6664 taking £1666 TFLS, leaving £4998 crystallised but not drawn.

With transfer: she takes £18333 UFPLS

The only difference is that with the transfer, she has been able to take £1250 more from the taxable part of the pension rather than the tax free part. But that means the husband has £1250 less he is able to take from the taxable part of his pension without paying tax. It cancels. Exactly.

25% of both pensions are tax free whenever you take them. Plus a combined allowance allows £25kpa of taxable income to be tax free. Those tax free totals stay the same whether you transfer or not. You haven't got anything extra with your little wheeze. It's such basic obvious maths that you shouldn't even need to do any calculations. It's like your last little loophole. It doesn't gain you anything.

garmeg

zagfles said:

pensionpawn said:

zagfles said:

pensionpawn said:

zagfles said:

pensionpawn said:

garmeg said:

pensionpawn said:

Dazed_and_C0nfused said:

"you do not pay Income Tax or your income is below your Personal Allowance (usually £12,500)"

There is no such condition in the tax legislation.

The guidance you have linked to is about the benefit of Marriage Allowance, not who can be eligible.

The key thing is that neither the applicant or the recipient can be liable to higher rate tax.  So a couple both earning £40k are eligible for Marriage Allowance but are highly unlikely to benefit financially (as a couple) from applying.

If the applicants only taxable income is say £13,250 pension then they will pay tax on £2,000 of that income (at 19% or 20% depending on where they are resident for tax purposes).  There is no penalty as they are still eligible for Marriage Allowance.

Thanks for that. So if your income is above the 'reduced to 90% of tax allowance' though below the normal threshold for higher rate tax, you just pay tax at 20% on the excess? The advantage of donating 10% of your tax allowance to a spouse accessing their pension via UFPLS is that it 'magnifies' your combined tax free pension 'income' to £29583 compared to £25000 (2 x £12500). An extra £4583 (18.3%) tax free income pa.

You forgot the lower tax free cash in the non transfer scenario of £12,500 / 3 = £4,166 so you get £16,666 tax free from pension.

If transferred
£11,250+ £13,750x4/3 = £29,583

No transfer
£12,500 + £16,666 = £29,166.

The gain is therefore £417.

This is £1,250 / 3.

Not to be sniffed at, obviously.

Yes, thanks for that! I just frustratingly lost my browser tab about the article which brought my attention to this strategy. Some financial adviser exploring options for maximising tax free pension access and this was exactly the point he was making, the extra £417 pa, not the £4583 I posted in haste (which is mainly the 25% TFLS element). The £417 is the real gain from this approach. Cheers.

The gain is zero. You're just taking more of the tax free portion of the wife's pension now, so there'll be less later. 

If that's what you need it might make it a bit administratively easier than phased drawdown, but there is no magic extra tax free allowance being created.

I agree that you can't take more out of the pot than is in there, unless the pot grows, which of course we all hope it does, and at a decent rate. If the starting amount of the pot, coupled with the growth rate, supports withdrawals at £18333 pa then there is year on year gain. The pot may be smaller when you croke it, however I'm planning a retirement, not an inheritance.

The only benefit of using this method would be if the husband didn't have a big enough pot to utilise his full personal allowance every year over his retirement. And that's what the marriage allowance is designed for.

The wife can take as much of the 25% tax free portion out of the pension as she wants each year, it doesn't have to be in the form of a UFPLS, it can be using phased drawdown where some of the pot is crystallised but not drawn. Transferring the allowance just allows her to take £1250 more in taxable income without getting taxed, but at the same time reduces the amount of taxable income the husband can take without being taxed. 

It's completely neutral for couples where they both have sufficient pension to utilise their own personal allowance.

Why is there no benefit if both husband and wife have large enough pots? The husband could have a pot of £500k and chose to draw down only £11250pa because he transferred 10% of his personal allowance to his wife. The wife could have a £750k pot and draw down £18333 pa. I appreciate what the marriage allowance was designed for, however I'm just investigating other ways it can legally / legitimately be applied. I don't see how this can be viewed as tax neutral if £18333 + £11250 = £29583 (c/f £16667 + £12500 = £29167) can be sustained throughout retirement. It's an extra £417 pa whilst you're still breathing.

How many times?

The wife can draw £18333 tax free pa WHETHER OR NOT she's had a marriage allowance transfer.

Without transfer: she takes £16667 UFPLS and crystallises £6664 taking £1666 TFLS, leaving £4998 crystallised but not drawn.

With transfer: she takes £18333 UFPLS

The only difference is that with the transfer, she has been able to take £1250 more from the taxable part of the pension rather than the tax free part. But that means the husband has £1250 less he is able to take from the taxable part of his pension without paying tax. It cancels. Exactly.

25% of both pensions are tax free whenever you take them. Plus a combined allowance allows £25kpa of taxable income to be tax free. Those tax free totals stay the same whether you transfer or not. You haven't got anything extra with your little wheeze. It's such basic obvious maths that you shouldn't even need to do any calculations. It's like your last little loophole. It doesn't gain you anything.

There will be a gain once the husband's pension fund has been depleted though. Of course we cannot know when that may happen.

zagfles

garmeg said:

zagfles said:

pensionpawn said:

zagfles said:

pensionpawn said:

zagfles said:

pensionpawn said:

garmeg said:

pensionpawn said:

Dazed_and_C0nfused said:

"you do not pay Income Tax or your income is below your Personal Allowance (usually £12,500)"

There is no such condition in the tax legislation.

The guidance you have linked to is about the benefit of Marriage Allowance, not who can be eligible.

The key thing is that neither the applicant or the recipient can be liable to higher rate tax.  So a couple both earning £40k are eligible for Marriage Allowance but are highly unlikely to benefit financially (as a couple) from applying.

If the applicants only taxable income is say £13,250 pension then they will pay tax on £2,000 of that income (at 19% or 20% depending on where they are resident for tax purposes).  There is no penalty as they are still eligible for Marriage Allowance.

Thanks for that. So if your income is above the 'reduced to 90% of tax allowance' though below the normal threshold for higher rate tax, you just pay tax at 20% on the excess? The advantage of donating 10% of your tax allowance to a spouse accessing their pension via UFPLS is that it 'magnifies' your combined tax free pension 'income' to £29583 compared to £25000 (2 x £12500). An extra £4583 (18.3%) tax free income pa.

You forgot the lower tax free cash in the non transfer scenario of £12,500 / 3 = £4,166 so you get £16,666 tax free from pension.

If transferred
£11,250+ £13,750x4/3 = £29,583

No transfer
£12,500 + £16,666 = £29,166.

The gain is therefore £417.

This is £1,250 / 3.

Not to be sniffed at, obviously.

Yes, thanks for that! I just frustratingly lost my browser tab about the article which brought my attention to this strategy. Some financial adviser exploring options for maximising tax free pension access and this was exactly the point he was making, the extra £417 pa, not the £4583 I posted in haste (which is mainly the 25% TFLS element). The £417 is the real gain from this approach. Cheers.

The gain is zero. You're just taking more of the tax free portion of the wife's pension now, so there'll be less later. 

If that's what you need it might make it a bit administratively easier than phased drawdown, but there is no magic extra tax free allowance being created.

I agree that you can't take more out of the pot than is in there, unless the pot grows, which of course we all hope it does, and at a decent rate. If the starting amount of the pot, coupled with the growth rate, supports withdrawals at £18333 pa then there is year on year gain. The pot may be smaller when you croke it, however I'm planning a retirement, not an inheritance.

The only benefit of using this method would be if the husband didn't have a big enough pot to utilise his full personal allowance every year over his retirement. And that's what the marriage allowance is designed for.

The wife can take as much of the 25% tax free portion out of the pension as she wants each year, it doesn't have to be in the form of a UFPLS, it can be using phased drawdown where some of the pot is crystallised but not drawn. Transferring the allowance just allows her to take £1250 more in taxable income without getting taxed, but at the same time reduces the amount of taxable income the husband can take without being taxed. 

It's completely neutral for couples where they both have sufficient pension to utilise their own personal allowance.

Why is there no benefit if both husband and wife have large enough pots? The husband could have a pot of £500k and chose to draw down only £11250pa because he transferred 10% of his personal allowance to his wife. The wife could have a £750k pot and draw down £18333 pa. I appreciate what the marriage allowance was designed for, however I'm just investigating other ways it can legally / legitimately be applied. I don't see how this can be viewed as tax neutral if £18333 + £11250 = £29583 (c/f £16667 + £12500 = £29167) can be sustained throughout retirement. It's an extra £417 pa whilst you're still breathing.

How many times?

The wife can draw £18333 tax free pa WHETHER OR NOT she's had a marriage allowance transfer.

Without transfer: she takes £16667 UFPLS and crystallises £6664 taking £1666 TFLS, leaving £4998 crystallised but not drawn.

With transfer: she takes £18333 UFPLS

The only difference is that with the transfer, she has been able to take £1250 more from the taxable part of the pension rather than the tax free part. But that means the husband has £1250 less he is able to take from the taxable part of his pension without paying tax. It cancels. Exactly.

25% of both pensions are tax free whenever you take them. Plus a combined allowance allows £25kpa of taxable income to be tax free. Those tax free totals stay the same whether you transfer or not. You haven't got anything extra with your little wheeze. It's such basic obvious maths that you shouldn't even need to do any calculations. It's like your last little loophole. It doesn't gain you anything.

There will be a gain once the husband's pension fund has been depleted though. Of course we cannot know when that may happen.

As I said  "The only benefit of using this method would be if the husband didn't have a big enough pot to utilise his full personal allowance every year over his retirement."

pensionpawn

garmeg said:

pensionpawn said:

With a personal allowance of £3600 available until you're 75 I would imagine that any reinvesting of spare cash would initially be back into a SIPP. It would be disrespectful not to accept the offer of an £1440 (2 x £720) each year from the government. The extra £417 (from the method above) could offset some of the £2880 per person.

But only a quarter of each £720 can be taken tax free so gain of £180 each. The rest would be taxable.

I don't see how that is a problem, especially if you're not in a hurry for the £540, and even if you are you're still £612 up on the previous year.

michaels

pensionpawn said:

garmeg said:

pensionpawn said:

With a personal allowance of £3600 available until you're 75 I would imagine that any reinvesting of spare cash would initially be back into a SIPP. It would be disrespectful not to accept the offer of an £1440 (2 x £720) each year from the government. The extra £417 (from the method above) could offset some of the £2880 per person.

But only a quarter of each £720 can be taken tax free so gain of £180 each. The rest would be taxable.

I don't see how that is a problem, especially if you're not in a hurry for the £540, and even if you are you're still £612 up on the previous year.

Is this a trolling thread?