£2880 to SIPP for wife

stephen0002002

Wife and myself are 67/66 both retired and taking full state pension.

I notice that the latest tax allowance is £12570/yr and the state pension is £10556/yr
So by putting away the £2880 for wifes cash sipp (as we have been doing),
and getting the added bonus making it £3550?
I suspect now, if we withdraw more than £2000 then she is liable to pay the tax ?

Is that true folks ?

1) I wonder if we just leave in (say the extra) £1000 and take it another year ?
2) If all the above is correct = Perhaps its easier not saving the full £2880 each year
     (because we cant take it all out w/o paying tax).
3) I seem to remember that there is an age when you can't save the £2880 and claim the bonus.
     If thats true then maybe we keep saving the full 2880 and just withdraw after then ?
4) Also perhaps just not save the 2880 one year and just withdraw some cash in the sipp.
     - I'm assuming that could be a good plan also

Could I have your thoughts on the best way forward please.

Thanks Steve

NoMore

Its 3600 not 3550, you end up with after tax relief. You can do this every year up to age 75.

Even withdrawing and then having to pay a little tax your ahead, don't necessarily try to avoid tax altogether.

For question 3 its entirely down to your plan for this money.

Linton

Your wife pays in £2880 which is increased to £3600, not £3550.

You are correct that if your wife's taxable drawdown + State Pension is over £12570 then tax will be due.

(1) and (2) is up to your wife.  Even if she pays a small amount of tax there is still the benefit from the 25% tax free so the tax free withdrawal total is £900+ £12570-£10556)=£2914,

3) You cannot pay into a pension after you reach 75.  Your wife can leave the money in the SIPP and withdraw it at any time.

Albermarle

The bit you are missing is that when you withdraw it, then 25% of it will be tax free.

and getting the added bonus making it £3550? £3,600
I suspect now, if we withdraw more than £2000 then she is liable to pay the tax ?

Small amendment in bold.

If you withdrew the full amount each year. Then £900 would be tax free and £2,700 would be classed as taxable income.

So £10,556 + £2,700 = £13,226 

Take away the personal allowance of £12,570 leaves £656 to be taxed at 20% which is £131

So overall she is adding £2,880 and getting back £3,600 minus £131 = £3,469 . A gain of £589 .

As the state pension grows each year but currently the personal allowance is not, so each year she will pay a bit more tax .

She can make this gain until she is 75. It would be advisable not to delay withdrawing the money each year, as the spare personal allowance she has would be wasted,

QrizB

stephen0002002 said:

2) If all the above is correct = Perhaps its easier not saving the full £2880 each year
     (because we cant take it all out w/o paying tax).

Would you rather have 80% of something, or 100% of nothing?

It's a serious question.

molerat

Even if paying tax on the whole of the £2700 it is £180 profit for little effort. 6.25% uplift for locking your money away for a couple of months, would equate to something like a 37% aer.  And interest is paid on the balance whilst in the pension account.

Dazed_and_C0nfused

stephen0002002 said:

Wife and myself are 67/66 both retired and taking full state pension.

I notice that the latest tax allowance is £12570/yr and the state pension is £10556/yr
So by putting away the £2880 for wifes cash sipp (as we have been doing),
and getting the added bonus making it £3550?
I suspect now, if we withdraw more than £2000 then she is liable to pay the tax ?

Is that true folks ?

1) I wonder if we just leave in (say the extra) £1000 and take it another year ?
2) If all the above is correct = Perhaps its easier not saving the full £2880 each year
     (because we cant take it all out w/o paying tax).
3) I seem to remember that there is an age when you can't save the £2880 and claim the bonus.
     If thats true then maybe we keep saving the full 2880 and just withdraw after then ?
4) Also perhaps just not save the 2880 one year and just withdraw some cash in the sipp.
     - I'm assuming that could be a good plan also

Could I have your thoughts on the best way forward please.

Thanks Steve

Is your wife's Personal Allowance actually £12,570 or just £11,310?

It doesn't alter the basic principle but could slightly reduce the overall benefit her as more of the SIPP income would be taxed.

Also the standard new State Pension is currently £10,600, not £10,556.

drumtochty

Dazed_and_C0nfused said:

stephen0002002 said:

Wife and myself are 67/66 both retired and taking full state pension.

I notice that the latest tax allowance is £12570/yr and the state pension is £10556/yr
So

Also the standard new State Pension is currently £10,600, not £10,556.

Not the case, the first week or so of the 23/24 tax year is at the 22/23 rate and a week or so of the 22/23 pension will be in that first payment in April. My good lady will be taxed on £10,581 for her State Pension in 2023/2024. Depends on the day of the week you are paid. You get the rest in 24/25.

drumtochty

stephen0002002 I have run some numbers if the good lady puts in £2880 a year up to age 75 and takes the £900 a year tax free and takes £2,700 a year taxable. I assume using various forecast she will pay tax over these years of £3,700 from now until 75.

If she reduces her taxable withdrawal to an annual amount within the personal allowance it is just daft if paying in to 75 years of age. She will never get all the money out tax free.

I recon she should either bite the bullet and pay in to 75 and pay tax on the taxable amounts. 

Otherwise pay in three years of £2,880 per year to strip the money out in a reasonable term, tax free. That in my honest opinion is the tail wagging the taxfree dog.