Paying Lump Sum into Pension later in life...

DE_612183

Ok, so I'm over 55 - I'm still working, and have a "Final Salary Pension" from a previous job.

I have a stkeholder pension with about £60 in it.

I have a lump sum of £70k from inheritance - if I pay the £70k into the pension, do I get tax credit of 20% from the governemnt ( an additional 14k )? And if so if I then take out a lump sum of the total 25% of £144k ( 60+70+14 ) £36k is that all tax free?

Thanks for any advice!

NoMore

In theory yes, but the devil is in the details and you haven't provided enough info to be able to confirm.

There are two limits which affect the amount of Pension contributions you can make per year.

1) The Tax relief limit, you can only get tax relief up to the amount of relevant income you earn for the year. Pension income doesn't count as relevant in this instance.

2) The Annual Allowance (AA), which states that all contributions to a Pension (including employer contributions) cannot exceed 40k P.A. but this can be extended by unused allowance from the previous 3 years.

Note, these are separate and distinct limits and people often get confused and try and conflate the two. Its very easy to have a large AA because of carryover, but be unable to take advantage due to not earning enough.

Marcon

NoMore said:

In theory yes, but the devil is in the details and you haven't provided enough info to be able to confirm.

There are two limits which affect the amount of Pension contributions you can make per year.

1) The Tax relief limit, you can only get tax relief up to the amount of relevant income you earn for the year. Pension income doesn't count as relevant in this instance.

2) The Annual Allowance (AA), which states that all contributions to a Pension (including employer contributions*) cannot exceed 40k P.A. but this can be extended by unused allowance from the previous 3 years.

Note, these are separate and distinct limits and people often get confused and try and conflate the two. Its very easy to have a large AA because of carryover, but be unable to take advantage due to not earning enough.

*and including any tax relief on personal contributions claimed on your behalf by the provider (which would apply in the case of a stakeholder pension).

Dave46049 said:

Ok, so I'm over 55 - I'm still working, and have a "Final Salary Pension" from a previous job.

I have a stkeholder pension with about £60 in it.

I have a lump sum of £70k from inheritance - if I pay the £70k into the pension, do I get tax credit of 20% from the governemnt ( an additional 14k )? And if so if I then take out a lump sum of the total 25% of £144k ( 60+70+14 ) £36k is that all tax free?

Thanks for any advice!

How much are you earning? If you don't earn enough to lob the lot in to your pension in one go, you can 'drip feed' over a period of tax years, depending on how much you earn in each tax year.

Dazed_and_C0nfused

If you were eligible for tax relief and don't have annual allowance issues then it would be 25% that gets added, not £14k.

So your £70k becomes £87.5k.  Tax relief of 20% on the gross is £17.5k

DE_612183

My current income is a mixture of salary, dividends and the FS Pension - at the moment it's about 46k before tax

DE_612183

I'm also still paying into stakeholder and emplyee pensions to the tune of about £250 a month

NoMore

Dave46049 said:

My current income is a mixture of salary, dividends and the FS Pension - at the moment it's about 46k before tax

The dividends and the FS pension don't count as relevant income for your pension contribution

DE_612183

ah, so salary is about £10k 

NoMore

Then you will have to drip feed it in over several years as @Marcon suggested.

8k per year, will be grossed up to 10k in the pension. Or the relevant correct amount as you said you earn 'about' 10k. So if its under 10k , you would need to put less than 8k in and vice versa. 

dunstonh

When you say dividends and salary of around £10k, does that mean you have a limited company?  If so, your contribution allowance is higher if you make company contributions.  

If the money is held personally, you just draw less in dividends and use the personal money.  And then get the company to pay into the pension instead.

DE_612183

dunstonh said:

When you say dividends and salary of around £10k, does that mean you have a limited company?  If so, your contribution allowance is higher if you make company contributions.  

If the money is held personally, you just draw less in dividends and use the personal money.  And then get the company to pay into the pension instead.

Yes, I have a Ltd Co. Both myself and wife are employees and we boyth pay into a workplace pension scheme ( as employer and employee )