Drawdown and re-invest

DE_612183

Ok, so my understanding is that if I drawdown from my pension pot ( 25% tax free ), I can only re-invest that into another pension and get the 20% Tax Relief up to a certain amount.

However if I drawdown a bigger number - say £10,000 - could I re-invest that in my spouses pension pot and get tax relief on the full amount?

I don't need the drawdown to live off as I'm still earning, so in effect we could say we are investing our earnings and living off the drawdown - does that make sense?

AlanP_2

DE_612183 said:

Ok, so my understanding is that if I drawdown from my pension pot ( 25% tax free ), I can only re-invest that into another pension and get the 20% Tax Relief up to a certain amount.

However if I drawdown a bigger number - say £10,000 - could I re-invest that in my spouses pension pot and get tax relief on the full amount?

I don't need the drawdown to live off as I'm still earning, so in effect we could say we are investing our earnings and living off the drawdown - does that make sense?

First point - You will be limited by your "relevant earnings", which sounds like it will be your salary, and / or £40k pa Annual Allowance.

What you also need to look out for, and manage is the Pension Recycling rules, HMRC are not in favour of giving out multiple tax reliefs on same money. See https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/.

Second point - Given your comment re £10k I guess you are aware of the £7.5k "rule" in the RL document?

Giving money to someone else, for them to do whatever they want with it, is reasonable and acceptable and something people do all the time. If the receiver wants to pay it into a pension that's up to them.

Albermarle

Your spouse would have to have enough earnings to be able to add the money to their pension and get tax relief.

DE_612183

AlanP_2 said:

DE_612183 said:

Ok, so my understanding is that if I drawdown from my pension pot ( 25% tax free ), I can only re-invest that into another pension and get the 20% Tax Relief up to a certain amount.

However if I drawdown a bigger number - say £10,000 - could I re-invest that in my spouses pension pot and get tax relief on the full amount?

I don't need the drawdown to live off as I'm still earning, so in effect we could say we are investing our earnings and living off the drawdown - does that make sense?

First point - You will be limited by your "relevant earnings", which sounds like it will be your salary, and / or £40k pa Annual Allowance.

What you also need to look out for, and manage is the Pension Recycling rules, HMRC are not in favour of giving out multiple tax reliefs on same money. See https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/.

Second point - Given your comment re £10k I guess you are aware of the £7.5k "rule" in the RL document?

Giving money to someone else, for them to do whatever they want with it, is reasonable and acceptable and something people do all the time. If the receiver wants to pay it into a pension that's up to them.

Thanks Alan,

On point 1 my relevant earning will still be over the £40k.
Point 2 - no I wasn't aware of the 7.5k rule - whats that?

Albermarle

Point 2 - no I wasn't aware of the 7.5k rule - whats that?

It is explained in the link Alan P sent you .

DE_612183

Ok, so I can with draw £7.5k and pay it into another pension.

My wife does not have any earnings, so @Albermarle comment indicates that she would get no tax relief at all, however when I look at HMRC they make this statement:

If someone else pays into your pension

When someone else (for example your partner) pays into your pension, you automatically get tax relief at 20% if your pension provider claims it for you (relief at source).

However on that fact sheet - there is no mention of the earning piece - I would assume that it's different when someone else pays into your pension opposed to when you pay in your self?

Tax on your private pension contributions: Tax relief - GOV.UK (www.gov.uk)

Dazed_and_C0nfused

DE_612183 said:

Ok, so I can with draw £7.5k and pay it into another pension.

My wife does not have any earnings, so @Albermarle comment indicates that she would get no tax relief at all, however when I look at HMRC they make this statement:

If someone else pays into your pension

When someone else (for example your partner) pays into your pension, you automatically get tax relief at 20% if your pension provider claims it for you (relief at source).

However on that fact sheet - there is no mention of the earning piece - I would assume that it's different when someone else pays into your pension opposed to when you pay in your self?

Tax on your private pension contributions: Tax relief - GOV.UK (www.gov.uk)

Someone who has no earnings in a tax year can only contribute £3,600 (gross).

They pay £2,880 and the pension company adds 25% to make the gross contribution £3,600.

You cannot get any tax relief, it is your wife's tax relief.  The fact she hasn't paid any tax doesn't prevent her getting the £720.

Albermarle

As above it does not matter who or how the contribution is made . The person whose pension it is can only claim tax relief that pertains to their situation with regard to earnings. 

DE_612183

Dazed_and_C0nfused said:

DE_612183 said:

Ok, so I can with draw £7.5k and pay it into another pension.

My wife does not have any earnings, so @Albermarle comment indicates that she would get no tax relief at all, however when I look at HMRC they make this statement:

If someone else pays into your pension

When someone else (for example your partner) pays into your pension, you automatically get tax relief at 20% if your pension provider claims it for you (relief at source).

However on that fact sheet - there is no mention of the earning piece - I would assume that it's different when someone else pays into your pension opposed to when you pay in your self?

Tax on your private pension contributions: Tax relief - GOV.UK (www.gov.uk)

Someone who has no earnings in a tax year can only contribute £3,600 (gross).

They pay £2,880 and the pension company adds 25% to make the gross contribution £3,600.

You cannot get any tax relief, it is your wife's tax relief.  The fact she hasn't paid any tax doesn't prevent her getting the £720.

sorry - yes I understand that it's my wife's tac relief.
Thanks for the clarification on the 2880 - thats the figure I was thinking of. 

pensionpawn

DE_612183 said:

Ok, so my understanding is that if I drawdown from my pension pot ( 25% tax free ), I can only re-invest that into another pension and get the 20% Tax Relief up to a certain amount.

However if I drawdown a bigger number - say £10,000 - could I re-invest that in my spouses pension pot and get tax relief on the full amount?

I don't need the drawdown to live off as I'm still earning, so in effect we could say we are investing our earnings and living off the drawdown - does that make sense?

You can reinvest into your own pension up to a £7K5 no worries, however after that recycling rules tests come into play. However you have less hurdles & hoops contributing to your wife's pension. This can also help balance pension pots (our aim) to enable us both to draw down our personal allowance. Using my TFLS I topped up my wife's pension to her salary last year, atracting a decent uplift. I also intend to chuck £2880 into her pension after she retires soon until she's 75. All legit.

Audaxer

DE_612183 said:

Dazed_and_C0nfused said:

DE_612183 said:

Ok, so I can with draw £7.5k and pay it into another pension.

My wife does not have any earnings, so @Albermarle comment indicates that she would get no tax relief at all, however when I look at HMRC they make this statement:

If someone else pays into your pension

When someone else (for example your partner) pays into your pension, you automatically get tax relief at 20% if your pension provider claims it for you (relief at source).

However on that fact sheet - there is no mention of the earning piece - I would assume that it's different when someone else pays into your pension opposed to when you pay in your self?

Tax on your private pension contributions: Tax relief - GOV.UK (www.gov.uk)

Someone who has no earnings in a tax year can only contribute £3,600 (gross).

They pay £2,880 and the pension company adds 25% to make the gross contribution £3,600.

You cannot get any tax relief, it is your wife's tax relief.  The fact she hasn't paid any tax doesn't prevent her getting the £720.

sorry - yes I understand that it's my wife's tac relief.
Thanks for the clarification on the 2880 - thats the figure I was thinking of. 

For the £2,880 going into your wife's pension, it is best if she actually makes the contribution from her bank account. I just mention that as that point has been made previously on the forum under recycling queries.

If your wife is over 55 and already has a DC pension pot, it might also be worth considering her withdrawing up to her personal tax allowance each year from her pension pot, to get as much out tax free as she can each year, and re-investing it in the same or similar funds in an S&S ISA.