Modelling the future / Pension decisions (eg Transfer my deferred DB ?)

optoutDB

I saw the £2880 Pension Recycling thread, can I benefit by doing some recycling? 

From next year when I'm 55 and until I start drawing my DB pension I might have some tax allowance not used in some years. 

eg if I make 8k profit, can I put 8k into my pension (and govt adds 25%), and also withdraw £6k (of which 25% is tax free)?  Giving income of £12,500  (no tax due).

Albermarle

optoutDB said:

I saw the £2880 Pension Recycling thread, can I benefit by doing some recycling? 

From next year when I'm 55 and until I start drawing my DB pension I might have some tax allowance not used in some years. 

eg if I make 8k profit, can I put 8k into my pension (and govt adds 25%), and also withdraw £6k (of which 25% is tax free)?  Giving income of £12,500  (no tax due).

So if you have £8K employment income, you can put in £6,400 and £1,600 tax relief will be added.
Income from pension does not count but profits from being self employed/sole trader do. 

It is not recycling, which has a specific meaning for pensions. It is just normal and OK to do .

QrizB

optoutDB said:

I saw the £2880 Pension Recycling thread, can I benefit by doing some recycling?

Yes, with limits.

eg if I make 8k profit, can I put 8k into my pension (and govt adds 25%), and also withdraw £6k (of which 25% is tax free)?  Giving income of £12,500  (no tax due).

You can't contribute more than your gross earnings, and once you take a single penny of taxable money from a DC pension, you're limited to paying in £4k pa forever more.
So if you make £8k profit you could contribute £6k, which the government would make up to £8k, then withdraw £2k tax-free (leaving the £6k of taxable money in the pension) without problems.

Albermarle

You can't contribute more than your gross earnings, and once you take a single penny of taxable money from a DC pension, you're limited to paying in £4k pa forever more.
So if you make £8k profit you could contribute £6k, which the government would make up to £8k, then withdraw £2k tax-free (leaving the £6k of taxable money in the pension) without problems.

The first sentence is correct and a good point to make.

For the second sentence the figures are not correct . See my previous post .

QrizB

Albermarle said:

You can't contribute more than your gross earnings, and once you take a single penny of taxable money from a DC pension, you're limited to paying in £4k pa forever more.
So if you make £8k profit you could contribute £6k, which the government would make up to £8k, then withdraw £2k tax-free (leaving the £6k of taxable money in the pension) without problems.

The first sentence is correct and a good point to make.

For the second sentence the figures are not correct . See my previous post .

Apologies, I think we cross-posted. I'll amend mine.

optoutDB

I'm afraid I haven't digested the SIPP withdrawal tax rules yet. But let me run 1 scenario by you (all).  I think I want to extract as much as I can (efficiently) from my SIPP so that I can spend it or put it in my ISA before I start drawing my DB pension (which I also want to draw early).

So if I take 25% (of the 100k) tax free next year when I'm 55. That won't limit how much I can contribute (ie the £4k MAPP). The reason I ask is that I have just started getting Carers allowance for looking after my parent, which has a £6.5k limit on earnings. If I make 12k profit, I need to put all £12k into the pension ( 50% is allowable as an expense) to bring my earnings within the limit.

Assuming the above is OK, in subsequent years can I get more out without triggering MAPP or breaking recycling rules? eg Can I get 25% of the previous years contribution (=3k) out tax free?

Note: I checked, and "money received from an occupational or private pension" doesn't count as earnings for Carers assessment.

Thanks,

Dazed_and_C0nfused

, I need to put all £12k into the pension ( 50% is allowable as an expense) to bring my earnings within the limit.

If you contribute £12k gross into a relief at source pension i.e. you pay £9,600 and the pension company adds £2,400 in pension tax relief then you would still be taxed on £12k.  The pension contribution doesn't reduce your taxable income.

Carers Allowance is also taxable income (but I suspect not relevant earnings for pension contribution purposes so you would still be limited to contributing £12k gross unless MPAA limited that further).

So taxable profit of £12k + Carers Allowance = no spare Personal Allowance.

Putting £12k into the pension won't alter that at all and won't reduce your personal income tax liability.

NedS

optoutDB said:

I'm afraid I haven't digested the SIPP withdrawal tax rules yet. But let me run 1 scenario by you (all).  I think I want to extract as much as I can (efficiently) from my SIPP so that I can spend it or put it in my ISA before I start drawing my DB pension (which I also want to draw early).

So if I take 25% (of the 100k) tax free next year when I'm 55. That won't limit how much I can contribute (ie the £4k MAPP). The reason I ask is that I have just started getting Carers allowance for looking after my parent, which has a £6.5k limit on earnings. If I make 12k profit, I need to put all £12k into the pension ( 50% is allowable as an expense) to bring my earnings within the limit.

Assuming the above is OK, in subsequent years can I get more out without triggering MAPP or breaking recycling rules? eg Can I get 25% of the previous years contribution (=3k) out tax free?

Note: I checked, and "money received from an occupational or private pension" doesn't count as earnings for Carers assessment.

Thanks,

Firstly, if you have £12k of relevant earnings then you will be earning too much to claim Carers Allowance.

You can take 25% of your SIPP (or any DC pension) tax free, and that will not limit how much you can contribute in the future. However, the moment you take 1 penny of taxable income from your SIPP than you will be limited by the MPAA of £4000 gross per year, so would not be able to continue to contribute your full £12k earnings, only £4k max.

optoutDB

Dazed_and_C0nfused said:

....
Putting £12k into the pension won't alter that at all and won't reduce your personal income tax liability.

Yep that's all fine. I realise I'll pay tax on about 3.2k  (12 +3.9 -12.7)

optoutDB

NedS said:

Firstly, if you have £12k of relevant earnings then you will be earning too much to claim Carers Allowance.

.....

The calculation is 12k profit (according to CA team cash basis rules), minus tax (as calculated by CA team), minus 50% of pension contribution.  I've just been through the process and had my claim approved.