£2880 - £3600

Annod63

Good Afternoon
i opened a HL account a few years back and have been putting in £2880 to get the £720 tax, I have left £500 in the account to keep it open.

My question is I would like to put the £2880 in again this year and get the £720. But I am getting a trivial commutation for a small pension that will use up all this years tax allowance, so won’t be able to take out all the money tax free this year! 

A- Can I take 25% tax free this year then next tax year take the rest out in month 4 then put my £2880   In month 8 and take the full amount out again including the £720 in month10?

B- Put the £2880 in this year leave it till  next tax year and put another £2880 next tax year and draw all but the original £500 out in 2024 tax year approx November? 

I’m usually an one tax payer, my husband has a small marriage allowance from my tax code. 

Regards
Donna 

Albermarle

How much you can add is only really connected to any earnings you may have.
If you have no earnings ( or less than £3600 pa) then the most you can add is £3600 gross( including the £720 tax relief)
If you have earnings you can add the full amount to a pension gross,( even if you pay no tax)

The fact that you will have taxable income from another pension does not affect the above, but as you rightly say could affect the tax you pay when you withdraw from the HL pension.

So both your options should be OK. 

molerat

As a side note, you only need to keep £50 in the HL SIPP to keep it open.

Secret2ndAccount

Option A doesn't seem to mention putting in 2880 this tax year. You would then miss out on 720 free money. So option B it is. You can put in the 2880 at any time during the tax year. Have to wait a bit for the extra 720 to show up. You can take part or all of 25% tax free any time. 
Option C
2880 in some time between now and Apr 5. Await extra 720.
720 tax free out
2880 in After Apr 6. Await extra 720.
3600+2880 out (720 already taken)

Option D
2880 in some time between now and Apr 5. Await extra 720.
2880 in After Apr 6. Await extra 720.
3600+3600 out 

other combinations are possible

bioboybill

My wife has been doing this with HL every year since she stopped working. However, I took semi retirement just over a year ago and I'm considering doing it now. I already claimed my DB pension from the LGPS, but I still work 2 days a week. My pension is well over the £12570 tax threshold and so is my salary. I am also paying in to my LGPS pension again. I,m 99% certain that taking an UPLS from the UK SIPP wouldn't limit my ability to pay into my DB pension, but wanted to check. I know that my withdrawal from the SIPP would be subject to tax on 75% of the withdrawal.

QrizB

bioboybill said:

However, I took semi retirement just over a year ago and I'm considering doing it now.

I don't think £2880/3600 is particularly relevant to you.

bioboybill said:

I already claimed my DB pension from the LGPS, but I still work 2 days a week. My pension is well over the £12570 tax threshold and so is my salary. I am also paying in to my LGPS pension again.

You have relevant earnings, and have not yet taken flexible pension benefits which would invoke the MPAA. Your gross pension contributions are limited by your relevant earnings (assuming your part-time salary is less than £60k).

bioboybill said:

I,m 99% certain that taking an UPLS from the UK SIPP wouldn't limit my ability to pay into my DB pension, but wanted to check. I know that my withdrawal from the SIPP would be subject to tax on 75% of the withdrawal.

If you take a single penny of taxable income from your SIPP, you'll invoke the MPAA and will limit future tax-relievable pension contributions to (currently) £10k pa.

bioboybill

I know I can put a lot more than £2880 in the SIPP. I just wanted to make sure that invoking MPAA wouldn't limit my DB pension contributions. Not that I put anywhere near £10K a year away. My part time salary is only £16K.

xylophone

I just wanted to make sure that invoking MPAA wouldn't limit my DB pension contributions. 

Taking UFPLS from a SIPP does not trigger the MPAA in respect of contributions to a DEFINED BENEFIT Scheme.

It would trigger the MPAA in respect of contributions to a Defined Contribution Scheme.

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/money-purchase-annual-allowance/

jamesd

MPAA has no effect on a defined benefit pension. The annual allowance remaining for that is at least £50,000 and actually £60,000 minus what you use for DC.

You don't have to use a UFPLS and trigger the MPAA. You can:

1. Use the small pot rule to take all of a pension pot worth up to £10k up to three times in your life. HL will split in the background if it's over £10k. 25% is tax free and 75% taxable.

2. Take 25% tax free lump sum and leave the 75% in the flexi-access drawdown account until ready to trigger the MPAA.

The MPAA limit starts when the triggering drawing happens and until that day you can make up to £60k less defined benefit need of contributions.

What you could do is pay in £2,880 up to 5 April and another £2,880 from 6 April. If you pay in between 6 March and 5 April 2024 that relief will be added on 22 May. For 6 April to 5 May 2024 it'll be on 21 June. You could then use the small pot rule to withdraw the whole £7,200 plus some trivial interest.

That'll take you to a bit over five years from now with no MPAA. If you need more, pay in for three years and take out £10k small pot leaving £800 first time. £1,600 second and £2,400 on the third to get to almost eight years from now. Likely long enough, if you can afford it.

bioboybill

Thanks for the info, though I'm still slightly confused by the details lol. I'm not really bothered too much how often I can do this. I just don't want to break any rules and/or end up with a tax bill. 

I currently earn £16K for working 2 days a week and pay a nominal 5.8% of my salary into the LGPS DB scheme. I was just looking to pay £8K into a SIPP, get £2K tax relief and withdraw say £9600 out, with £2400 tax free and £7200 being taxable at 20%. I'm just looking for a quick cash profit. I don't want to invest it over so many years. Then I would repeat again next year. Is that ok, and presumably I could do that 3 years running?

jamesd

Yes, so long as you have pay of at least £10k you can do that three times with the small pot rule.