Is a pension for a non tax payer sensible? 8 March at 12:40PM in Pensions, annuities & retirement planning 9 replies 291 views

jimnew

At the moment my wife (52 years old)  is a non tax payer.

We plan for the foreseeable future maxing out her Isa allowance every year  .This we be in a mixture of cash and share ISAs.

Would it be worth also putting money into a personal pension?

The money would be coming out of her savings .Are there any tax benefits in a pension compared  to an ISA if you don't pay tax ?

Dazed_and_C0nfused

jimnew said:

At the moment my wife (52 years old)  is a non tax payer.

We plan for the foreseeable future maxing out her Isa allowance every year  .This we be in a mixture of cash and share ISAs.

Would it be worth also putting money into a personal pension?

The money would be coming out of her savings .Are there any tax benefits in a pension compared  to an ISA if you don't pay tax ?

Yes.  If she isn't earning anything she can contribute £3,600 gross each tax year.

£2,880 that she pays and £720 which is added in basic rate tax relief.  The fact she might not pay any tax doesn't change that.

75% of the pension will be taxable when eventually withdrawn but she may not have to pay any tax if her income is within her Personal Allowance.

So she can potentially get a free £720 each year 😊

jimnew

Thanks .

Do you have to claim the basic rate tax relief on a self assessment  tax return  ?

And I assume it would make sense to start the pension before the end of the tax year to get an extra years tax relief?  

Dazed_and_C0nfused

jimnew said:

Thanks .

Do you have to claim the basic rate tax relief on a self assessment  tax return  ?

And I assume it would make sense to start the pension before the end of the tax year to get an extra years tax relief?  

No, the pension company adds it automatically.  And they get the cash from HMRC.

You/your wife are never involved in that.

Yes, if she doesn't contribute in the current year she will have lost the first £720.

Marcon

Dazed_and_C0nfused said:

jimnew said:

At the moment my wife (52 years old)  is a non tax payer.

We plan for the foreseeable future maxing out her Isa allowance every year  .This we be in a mixture of cash and share ISAs.

Would it be worth also putting money into a personal pension?

The money would be coming out of her savings .Are there any tax benefits in a pension compared  to an ISA if you don't pay tax ?

Yes.  If she isn't earning anything she can contribute £3,600 gross each tax year.

£2,880 that she pays and £720 which is added in basic rate tax relief.  The fact she might not pay any tax doesn't change that.

75% of the pension will be taxable when eventually withdrawn but she may not have to pay any tax if her income is within her Personal Allowance.

So she can potentially get a free £720 each year 😊

To add to the above helpful answer...

If she's earning, but not earning enough to pay tax, she can pay in more depending on her earnings. The maximum she can contribute is the higher of:

1. 100% of her earnings (she pays in 80% of whatever she earns, and the tax top up brings the figure up to 100% of earnings)
2. £3,600 as detailed above.

jimnew

Next year my wife will start receiving interest on a considerable amount of inheritance.

Well over the £1000 interest tax limit and probably somewhere between £25,000 to £40,000.

I assume she will have to fill out a self assessment form .

Is the interest on savings taxed the same as normal income. With same thresholds as earnings?

And would this effect the amount she could put in a pension next year?

Thanks in advance  

Dazed_and_C0nfused

jimnew said:

Next year my wife will start receiving interest on a considerable amount of inheritance.

Well over the £1000 interest tax limit and probably somewhere between £25,000 to £40,000.

I assume she will have to fill out a self assessment form .

Is the interest on savings taxed the same as normal income. With same thresholds as earnings?

And would this effect the amount she could put in a pension next year?

Thanks in advance  

No, there are different rates and rate band for interest.

It won't alter how much she can add to a pension.

If her interest exceeds £10,000 then yes she will need to register for Self Assessment and complete a tax return each year.

If she has no earnings or pension income she will not pay tax on the first £17,310 or £18,570 (depends on her Personal Allowance).

xylophone

If your wife has no relevant earnings she is limited as to the amount she can contribute to a pension and receive tax relief.

She contributes up to £2880 to a personal pension and the provider claims up to £720 and adds it to her pot.

She can do this up to age 75.

With regard to savings/investment income outside tax privileged accounts like ISA, if she receives over £10,000 a year  from these sources, she will need to advise HMRC.

See https://www.gov.uk/apply-tax-free-interest-on-savings

If her only taxable income is from non ISA savings investments, she has her personal allowance, starter rate for savings, personal savings allowance, dividend allowance to set against tax due.

Albermarle

Next year my wife will start receiving interest on a considerable amount of inheritance.

Well over the £1000 interest tax limit and probably somewhere between £25,000 to £40,000.

It would not normally be wise to leave that amount of money ( up to One Million pounds?) in cash savings.
The problem is that most years ( and especially at the moment) you lose out to inflation, so the real value of the money will go down every year. Probably at a later stage a big chunk of inheritance tax could be due.
Unless you have some experience with personal finance, you/she may want to consider consulting an Independent Financial Advisor.

xylophone

Unless you have some experience with personal finance, you/she may want to consider consulting an Independent Financial Advisor.

You might try here

https://adviserbook.co.uk/

You would tick "confirmed independent" and any other specialisms required.