Moving money from savings to pension

scobie

So I have a couple of very specific questions.  I have around £750k in retirement money but it’s split around £400k in pension funds and the rest in Isas and various share funds. 

In addition I have two properties which I will rent out generating around £2300 a month. I plan to retire in 2-3 years. I’m 59. 

1.  Am I right in assuming that I can shift funds from savings into my pension and get the tax relief, keeping below the £60k annual limit of course.  I want to retain around £200k in flexible funds (ie out of pensions for now) meaning I could move £150k over the next 2-3 years.  

I am a high tax payer at 40 per cent. 

I know that I would inmediately get the 20 percent added automatically but if like the 40 percent. 

Which leads me to the second question. 

2. What is the process to get the 40 percent?  I don’t full out a self assessment form but realise I would have to. What is the actual process to make this happen? For this financial year I would clearly need to do a self assessment after year end, but when could I expect the extra 20 percent tax benefit to hit my pension fund?

all Help gratefully received.  

Dazed_and_C0nfused

1.  Assuming you will be making contributions to a relief at source scheme then you would add £40k and the pension company adds £10k in basic rate tax relief but any higher rate relief will depend on your overall tax situation.  

2.  You simply include RAS contributions in the relevant page of your Self Assessment return.  Any additional tax saving benefits you, probably with a reduced Self Assessment liability, it never gets added to your pension fund.  And it isn't guaranteed to be 40% overall.  You might contribute £50k (gross) but only be liable to higher rate tax on £50 so the personal tax saving would only be £10.  In other situations it might be much more than 40% overall.  It all depends on the specifics of your overall tax position.

NB.  Hopefully you have already been completing a "full" Self Assessment otherwise you can expect some contact from HMRC when they investigate what you have omitted!

QrizB

scobie said:

1.  Am I right in assuming that I can shift funds from savings into my pension and get the tax relief, keeping below the £60k annual limit of course.  I want to retain around £200k in flexible funds (ie out of pensions for now) meaning I could move £150k over the next 2-3 years.

Yes, assuming you have sufficient relevant earnings.

BTL income isn't generally considerd to be relevant earnings. Do you have eg. a PAYE job that pays you at least £60k pa?

scobie said:

2. What is the process to get the 40 percent?  I don’t full out a self assessment form but realise I would have to. What is the actual process to make this happen? For this financial year I would clearly need to do a self assessment after year end, but when could I expect the extra 20 percent tax benefit to hit my pension fund?

Assuming you're contributing to a relief-at-source pension scheme, rather than an employer net pay or salary sacrifice scheme, you'd pay £48k into the pension. The provider will gross it up to £60k.

You'll declare to HMRC that you've made a £60k gross contribution to a pension scheme, and they will add £60k to your 20% tax band. You'll pay 20% income tax on £60k more earnings, and 40% on £60k less. Your tax bill will be £12k lower.

NoMore

As the others, how are you declaring the income from the rental properties already to HMRC ?

And as QrizB points out your income from these properties aren't considered relevant earnings for pension contributions, limiting the amount of pension contributions you could make to a pension that qualify for tax relief, to your relevant earnings (from your actual job presumably).

Don't skip this point and go straight to the AA of 60k as unless you have relevant earnings (not the rental income) of above 60k, its the wrong amount.

El_Torro

You have rental properties but you don't do a self assessment? That sounds odd to me. 

Are you an employee? If so how does your employer take your pension contributions? If it's by salary sacrifice you should pay as much as possible into your pensions this way. Just note that your employer isn't allowed to pay you less than minimum wage. 

Assuming you are paying into your pensions yourself you will need to ask HMRC to refund you the additional tax relief. HMRC won't pay the 20% into your pension, they will give you the money. So if you want to say put £10k in your pension you contribute £8k yourself. Your pension provider claims £2k and adds that to your pension. HMRC then give you the other £2k next tax year. You can do whatever you want with this £2k, it doesn't have to go into your pension. 

Assuming you haven't maxed out your pension in the last 3 years you can potentially pay more than £60k this year by using carry forward. You can't pay in more than your earnings this year, this is still a limitation.


Remember that even though your rental income is taxed it does not count as pensionable earnings. So if you earn £40k a year from employment and £30k a year from rental income you can only pay £40k into your pension. 

Marcon

scobie said:

2. What is the process to get the 40 percent?  I don’t full out a self assessment form but realise I would have to. What is the actual process to make this happen? For this financial year I would clearly need to do a self assessment after year end, but when could I expect the extra 20 percent tax benefit to hit my pension fund?

all Help gratefully received.  

Looking at both this and your previous question https://forums.moneysavingexpert.com/discussion/6478825/final-pension-push-is-this-possible/p1 it's hard to understand why you don't currently fill out a self assessment form?

Dazed_and_C0nfused

I suspect the op probably means they don't currently fill out every single section of an SA return.

But then I doubt anyone does unless they took an unusual career swerve from Minister of Religion to MP (or vice versa) 😀

xylophone

You have rental properties but you don't do a self assessment? That sounds odd to me. 

It is not clear that he is renting out property at the moment.

The OP says

In addition I have two properties which I will rent out generating around £2300 a month. I plan to retire in 2-3 years. I’m 59. 

His other thread indicates that he has his home in the UK and a house and an apartment in Thailand.It seems that when he retires, he will live in Thailand and then rent out his UK home and one of the foreign properties.

Perhaps his foreign properties are for personal use only until he retires?

Marcon

xylophone said:

You have rental properties but you don't do a self assessment? That sounds odd to me. 

It is not clear that he is renting out property at the moment.

The OP says

In addition I have two properties which I will rent out generating around £2300 a month. I plan to retire in 2-3 years. I’m 59. 

His other thread indicates that he has his home in the UK and a house and an apartment in Thailand.It seems that when he retires, he will live in Thailand and then rent out his UK home and one of the foreign properties.

Perhaps his foreign properties are for personal use only until he retires?

But it also indicates the 'extra' job would push him into the 45% tax bracket, meaning a SA tax return becomes a requirement - but perhaps that job hasn't happened either?

OP - self assessment really isn't that bad and shouldn't put you off anything!

scobie

NoMore said:

As the others, how are you declaring the income from the rental properties already to HMRC ?

And as QrizB points out your income from these properties aren't considered relevant earnings for pension contributions, limiting the amount of pension contributions you could make to a pension that qualify for tax relief, to your relevant earnings (from your actual job presumably).

Don't skip this point and go straight to the AA of 60k as unless you have relevant earnings (not the rental income) of above 60k, its the wrong amount.

I don’t have income from those properties. Never have..  Yet.  As I said in my original post I will use them to generate income when I retire. 

I have my home in the U.K.    As a result of living overseas for many years also have an apartment in Bangkok and I have just purchased a retirement home in Thailand which my wife is currently living in while it’s being renovated.  

To date I haven’t been interested in generating income from them.  That will change when I cease work. 

scobie

Marcon said:

xylophone said:

You have rental properties but you don't do a self assessment? That sounds odd to me. 

It is not clear that he is renting out property at the moment.

The OP says

In addition I have two properties which I will rent out generating around £2300 a month. I plan to retire in 2-3 years. I’m 59. 

His other thread indicates that he has his home in the UK and a house and an apartment in Thailand.It seems that when he retires, he will live in Thailand and then rent out his UK home and one of the foreign properties.

Perhaps his foreign properties are for personal use only until he retires?

But it also indicates the 'extra' job would push him into the 45% tax bracket, meaning a SA tax return becomes a requirement - but perhaps that job hasn't happened either?

OP - self assessment really isn't that bad and shouldn't put you off anything!

I decided not to take the extra job. It seemed counter intuitive to add more work when I’m gliding into retirement and would have been very messy from a tax perspective.