Wringing the last bit out.

MX5huggy

Do pensions in payment from a deceased spouse count towards LTA? If it makes a difference they have 2 DB’s of their own and then 2 DB’s from their spouse. 

Deciding if they should do the £2880 SIPP “trick” they are a higher rate tax payer could they claim the additional tax on the contributions, because they would likely pay 40% on the way out, although the likely scenario the pension would be untouched and passed on on death. 

They have never triggered MPAA as not had any DC pension, but as they don’t work I think £2880 is the limit. Can they pay in on the final tax year that they turn 75 during? 

jamesd

Inherited pensions don't count towards the lifetime allowance of the receiver, only that of the original source person.

Yes, higher rate tax payers can get the 40% tax relief on their pension contribution. It'll be delivered as the £720 increase from £2880 to £3600 inside the pension and an increase in their basic rate income tax band of £720. If they don't have at least £3,600 of higher rate income caution needs to be used because it might result in a loss due to less than 40% on it all on the way in but 40% on 75% on the way out.

The expected all at 40% outcome is:

£720 in higher rate tax saved on £3,600 on the way in as it's reduced to basic rate.
£900 tax free lump sum.
£1,620 after higher rate tax on £2,700 at 40%.
Total effect of £2,880 paid in is £720 + £900 + £1,620 = £3,240. Gain £360.

For comparison the all at 20% effect is:

No additional basic rate saving, all relief is delivered inside the pension.
£900 tax free lump sum.
£2,160 after basic rate tax ono £2,700 at 20%.
Total effect of £2,880 aid in is £0 + £900 + £2,160 = £3,060. Gain £180.


You can pay in up to the day before your 75th birthday. 3#£3,600 gross, £2,880 net is the limit. Tell HMRC the "£3,600 gross to a relief at source scheme" figure to get the basic rate band increase and higher rate relief.