£2880/£3600 SIPP for a person on benefits.

[Deleted User]

Hi all.

I am wondering how putting £2880 into a SIPP would work for my wife. She is 63 and qualifies for full state pension at 66. She is currently in receipt of PIP benefit and ESA sick payment. Nothing means tested. Would putting money in then taking it back out after the tax relief cause any issues with the tax man or the benefits agency. I don't want to do anything that could cause any issues with anything she currently claims but want to get the benefit of the tax relief on the SIPP payment.

Thanks in advance.

molerat

Taking it out would be income and is taxable on 75% of the withdrawal according to your personal tax situation. 

(Note there are ways of doing this to avoid having to reclaim any tax when withdrawing - just ask)

As long as there is no means testing involved in anything she receives there is no problem doing what you intend.

Just checking you have had a state pension forecast and not just made an assumption based on "35 years" ?

sheslookinhot

If your wife is not earning from employment then there will be no tax to pay. The full £3600 will be tax free.

[Deleted User]

molerat said:

Taking it out would be income and is taxable on 75% of the withdrawal according to your personal tax situation. 

(Note there are ways of doing this to avoid having to reclaim any tax when withdrawing - just ask)

As long as there is no means testing involved in anything she receives there is no problem doing what you intend.

Just checking you have had a state pension forecast and not just made an assumption based on "35 years" ?

Hi, yes I've checked her State Pension forecast and it is for full amount. Her P60s say her earning are around £6000 for last year as I assume PIP is not counted. Is the full £3600 counted as income in which case I  would have to be careful that her sick money plus £3600 didn't go over her annual tax allowance?

molerat

Deleted User said:

molerat said:

Taking it out would be income and is taxable on 75% of the withdrawal according to your personal tax situation. 

(Note there are ways of doing this to avoid having to reclaim any tax when withdrawing - just ask)

As long as there is no means testing involved in anything she receives there is no problem doing what you intend.

Just checking you have had a state pension forecast and not just made an assumption based on "35 years" ?

Hi, yes I've checked her State Pension forecast and it is for full amount. Her P60s say her earning are around £6000 for last year as I assume PIP is not counted. Is the full £3600 counted as income in which case I  would have to be careful that her sick money plus £3600 didn't go over her annual tax allowance?

PIP is not taxable but contribution based ESA is.  Only 75% is "income" and taxable so £2700. Is she also in receipt of other pensions ?

[Deleted User]

molerat said:

springy2611 said:

molerat said:

Taking it out would be income and is taxable on 75% of the withdrawal according to your personal tax situation. 

(Note there are ways of doing this to avoid having to reclaim any tax when withdrawing - just ask)

As long as there is no means testing involved in anything she receives there is no problem doing what you intend.

Just checking you have had a state pension forecast and not just made an assumption based on "35 years" ?

Hi, yes I've checked her State Pension forecast and it is for full amount. Her P60s say her earning are around £6000 for last year as I assume PIP is not counted. Is the full £3600 counted as income in which case I  would have to be careful that her sick money plus £3600 didn't go over her annual tax allowance?

PIP is not taxable but contribution based ESA is.  Only 75% is "income" and taxable so £2700. Is she also in receipt of other pensions ?

No other pensions. How do we avoid being taxed on withdrawal? I assume if she was it would be refunded eventually anyway.

Dazed_and_C0nfused

Deleted User said:

molerat said:

Deleted User said:

molerat said:

Taking it out would be income and is taxable on 75% of the withdrawal according to your personal tax situation. 

(Note there are ways of doing this to avoid having to reclaim any tax when withdrawing - just ask)

As long as there is no means testing involved in anything she receives there is no problem doing what you intend.

Just checking you have had a state pension forecast and not just made an assumption based on "35 years" ?

Hi, yes I've checked her State Pension forecast and it is for full amount. Her P60s say her earning are around £6000 for last year as I assume PIP is not counted. Is the full £3600 counted as income in which case I  would have to be careful that her sick money plus £3600 didn't go over her annual tax allowance?

PIP is not taxable but contribution based ESA is.  Only 75% is "income" and taxable so £2700. Is she also in receipt of other pensions ?

No other pensions. How do we avoid being taxed on withdrawal? I assume if she was it would be refunded eventually anyway.

Yes it would be refunded without you needing to do anything (unless you need to complete a Self Assessment return for some reason).

The emergency tax code (1257L) is used on the first payment so if you take a maximum of £1,048 then no tax will be deducted and HMRC will usually issue a cumulative tax code for future payments.

Stoodles

Contributory ESA can be affected by drawing a pension. My NHS pension was paid early because of my disability, and  I have to notify ESA of the sum each year

[Deleted User]

Stoodles said:

Contributory ESA can be affected by drawing a pension. My NHS pension was paid early because of my disability, and  I have to notify ESA of the sum each year

That's what I was worried about, doing this and triggering some detrimental effect to current benefit payments.

Wife would need to be totally passive to any transactions I make on her benefit and wouldn't be happy if she had to take or make calls to facilitate drawing money out or dealing with benefits agency or HMRC.

zagfles

Deleted User said:

Stoodles said:

Contributory ESA can be affected by drawing a pension. My NHS pension was paid early because of my disability, and  I have to notify ESA of the sum each year

That's what I was worried about, doing this and triggering some detrimental effect to current benefit payments.

Wife would need to be totally passive to any transactions I make on her benefit and wouldn't be happy if she had to take or make calls to facilitate drawing money out or dealing with benefits agency or HMRC.

It looks like it only affects contribution based ESA if the pension over £85 a week, see https://www.gov.uk/employment-support-allowance/what-youll-get 

£85 a week is £4420 a year so withdrawing £3600 might be OK if it's the only pension income however I'm not sure how they'd treat withdrawing it in one lump sum. The rules are intended for normal pensions that are paid weekly/monthly. Suggest you ask on the benefits board.

NedS

zagfles said:

springy2611 said:

Stoodles said:

Contributory ESA can be affected by drawing a pension. My NHS pension was paid early because of my disability, and  I have to notify ESA of the sum each year

That's what I was worried about, doing this and triggering some detrimental effect to current benefit payments.

Wife would need to be totally passive to any transactions I make on her benefit and wouldn't be happy if she had to take or make calls to facilitate drawing money out or dealing with benefits agency or HMRC.

It looks like it only affects contribution based ESA if the pension over £85 a week, see https://www.gov.uk/employment-support-allowance/what-youll-get 

£85 a week is £4420 a year so withdrawing £3600 might be OK if it's the only pension income however I'm not sure how they'd treat withdrawing it in one lump sum. The rules are intended for normal pensions that are paid weekly/monthly. Suggest you ask on the benefits board.

As hinted at, it depends how the pension is taken. If placed into drawdown and a regular monthly amount is taken then that would be treated as income. However, if the pension is taken as a one off lump sum payment then that is treated as capital for benefit purposes.