Last year of taxed work

colmel16

Thanks in advance . I will be 55 in April and will be moving by choice onto part time. My annual wage will then be £10,000 so will not be paying tax. This tax year my gross will be £19,200 and paid £1,200 into a final salary works pension. Is it correct that i can open a sipp and pay in £14,400 have it topped up by tax to the £18,000 gross i have paid and then withdraw it at 55 gaining £900. I understand this will trigger the MPAA but being a future non tax payer i will be restricted to the £3,600 pension contribution anyway.

Linton

colmel16 said:

Thanks in advance . I will be 55 in April and will be moving by choice onto part time. My annual wage will then be £10,000 so will not be paying tax. This tax year my gross will be £19,200 and paid £1,200 into a final salary works pension. Is it correct that i can open a sipp and pay in £14,400 have it topped up by tax to the £18,000 gross i have paid and then withdraw it at 55 gaining £900. I understand this will trigger the MPAA but being a future non tax payer i will be restricted to the £3,600 pension contribution anyway.

You are not correct.  The amount you can put into a pension and get tax relief is limited to your gross income even if you are a non tax payer.  Which means you could get all your £10K income into pensions.  You can pay £8K net from your part time work into your SIPP .  HMRC will add the missing 20% so getting tax relief even though you did not pay tax. And you get to keep the £2K you didnt put in the SIPP.

Note that any pension you pay into your part time employer's scheme which is taken before tax will not get you the tax benefit and will reduce the amount you can put into your SIPP.

You are correct that taking more than the tax free lump sum from a DC pension wil lead to a permanent £4K gross limit to the amount that you and your employer can contribute. So you may want to consider whether you really want to withdraw the money at 55.

Albermarle

Your calculation for this year is correct .
When you go part time you can add gross up to your earnings, even though you will not have paid any tax . So you can £8000 that will attract tax relief of £2000.
The restriction of £3600 is for non earners .
Many people get this wrong and the Gov.uk website is less than clear to be fair. 

zagfles

Yes you can pay in £14400 into a SIPP which will get grossed up to £18,000. And you can withdraw it at 55, 75% of it would be taxable but some of this will use up the remaining personal allowance you have so you may gain more than £900.

But if you have spare personal allowance in future years, which it looks like you will have, you could withdraw over a few years and might be able to get it all out without paying tax. Assuming you have no other income to use up the personal allowance.

Note the are recycling rules (google HMRC recycling rules) but as your tax free cash is less than £7500 you should be OK. Unless it combines with anything else eg TFLS from the DB scheme.

But you're mistaken about being limited to £3600 just because you're a non taxpayer. There is rubbish out there which says that, but it is wrong. The tax relief limit is your earnings, or £3600 if greater.

So if income is £10,000 (after any employee pension conts taken off), you can put £8000 net into a SIPP and get £2000 tax relief. But of course if you trigger the MPAA that will restrict you to £4000, so it might be worth avoiding triggering it.

colmel16

Thats what i like about this forum, you get informed answers from people in the know. I may still go through with the idea  due mainly to the fact that i have a another pension pot to fall back on so don,t really need to build up any further. was looking at this as just a free holiday to celebrate semi retirement. when would be the best time to put the £14,400 into a sipp, thanks

Dazed_and_C0nfused

Any time before 5 April 2021.  After that and you have missed the boat (for the £18k).

colmel16

Just as a side thought, do the rules allow me to open 2 seperate sipps of £7,000 and take the both after 55 without activating the MPAA (with both being classed as small pots) thus allowing the income from next year to be used.

garmeg

colmel16 said:

Just as a side thought, do the rules allow me to open 2 seperate sipps of £7,000 and take the both after 55 without activating the MPAA (with both being classed as small pots) thus allowing the income from next year to be used.

Yes, but make it £10,000 each for the most benefit. And three of them if you can afford it and have available income.

Open a SIPP with Hargreaves Lansdown and they will create separate small pots of £10,000 from your SIPP when you decide to take any.