Using wife's tax allowance

Bobziz

Hi, 

I'm probably missing something obvious, but I'm struggling to think how we might use my wife's tax allowance for the first 5 years of retirement.

We aim to retire in just over 6 years. She'll be 53 so won't be able to draw a pension for 5 years. All of our money will be in tax wrappers by then. I want to cover the 5 years with a fixed floor at ~£20k/year and will probably do this via a gilt ladder, but this obviously won't use any of her tax allowance. I could use a 5 year fixed rate savings ladder, but this won't enable inflation protection.

Any ideas greatly appreciated,

Thanks

Dazed_and_C0nfused

Bobziz said:

Hi, 

I'm probably missing something obvious, but I'm struggling to think how we might use my wife's tax allowance for the first 5 years of retirement.

We aim to retire in just over 6 years. She'll be 53 so won't be able to draw a pension for 5 years. All of our money will be in tax wrappers by then. I want to cover the 5 years with a fixed floor at ~£20k/year and will probably do this via a gilt ladder, but this obviously won't use any of her tax allowance. I could use a 5 year fixed rate savings ladder, but this won't enable inflation protection.

Any ideas greatly appreciated,

Thanks

Assuming you aren't a higher rate payer she could apply for Marriage Allowance and reduce her Personal Allowance from £12,570 to £11,310.

And save you £252/year (if you are paying that much in tax).

Sarahspangles

Bobziz said:

Hi, 

I'm probably missing something obvious, but I'm struggling to think how we might use my wife's tax allowance for the first 5 years of retirement.

We aim to retire in just over 6 years. She'll be 53 so won't be able to draw a pension for 5 years. All of our money will be in tax wrappers by then. I want to cover the 5 years with a fixed floor at ~£20k/year and will probably do this via a gilt ladder, but this obviously won't use any of her tax allowance. I could use a 5 year fixed rate savings ladder, but this won't enable inflation protection.

Any ideas greatly appreciated,

Thanks

She would have the starter savings rate to play with, but that's not a good fit with your current plan. It might be useful if at some point you have a PCLS or inheritance in excess of your ISA limits and use joint savings accounts.

zagfles

If all your money will be in tax wrappers then you don't need her tax allowance, as above she could use the marriage allowance to transfer 10% of it to you although I suspect it'll be abolished by then (Labour have never liked it).

It's the same with any non earning spouse under pension age, eg housewife/husband, their tax allowance is wasted unless taxable investments etc can be transferred to them. But it looks like you don't need to if everything is in tax wrappers anyway. 

It's possible that holding IL gilts unwrapped may be slightly cheaper because charges are less on some platforms (eg HL have no charge for holding gilts unwrapped but do charge in an ISA or SIPP), this would mean the coupons would be taxable but unlikely to be taxed as should be covered by her PA. No CGT on gilts.  

Grumpy_chap

zagfles said:

It's the same with any non earning spouse under pension age, eg housewife/husband, their tax allowance is wasted unless taxable investments etc can be transferred to them. But it looks like you don't need to if everything is in tax wrappers anyway. 

It can be sensible to consider ways for the non-earning spouse to make pension contributions so that they gain income in retirement rather than all the income being in the name of one spouse.  The pension contributions may be limited to £2,880 (grossed up to £3,600) but it is better than nothing.

Nebulous2

For most of our lives we have been a one income household. I retired 8 years short of state pension age with a DB pension and took a part-time role.

It's a source of some frustration that we cannot use my wife's personal allowance as we bridge the gap to SPA, while most of my income is taxed. I recognise that the situation is no different from it was while I was working, but somehow it feels different. 

I'm confused by your dates. If your wife is 53 by the time she retires she would have less than 4 years until she is able to access a personal pension. If she doesn't have much in the way of personal pension, then paying in what she can prior to retiring would mean she could draw it down using her personal allowance. 

Bobziz

Nebulous2 said:

I'm confused by your dates. If your wife is 53 by the time she retires she would have less than 4 years until she is able to access a personal pension. If she doesn't have much in the way of personal pension, then paying in what she can prior to retiring would mean she could draw it down using her personal allowance. 

I believe the earliest she can access her DB  pension will be 58 as a result of the changes planned for 2034.

FIREDreamer

Bobziz said:

Nebulous2 said:

I'm confused by your dates. If your wife is 53 by the time she retires she would have less than 4 years until she is able to access a personal pension. If she doesn't have much in the way of personal pension, then paying in what she can prior to retiring would mean she could draw it down using her personal allowance. 

I believe the earliest she can access her DB  pension will be 58 as a result of the changes planned for 2034.

Increase of SPA to 68 is in 2044 I think, not 2034 - not aware anything planned for 2034.

Bobziz

FIREDreamer said:

Bobziz said:

Nebulous2 said:

I'm confused by your dates. If your wife is 53 by the time she retires she would have less than 4 years until she is able to access a personal pension. If she doesn't have much in the way of personal pension, then paying in what she can prior to retiring would mean she could draw it down using her personal allowance. 

I believe the earliest she can access her DB  pension will be 58 as a result of the changes planned for 2034.

Increase of SPA to 68 is in 2044 I think, not 2034 - not aware anything planned for 2034.

Ah yes, you're right. Looks like that can was kicked down the road in last years review. Comes back to the table in 2 years time though, but by that time my wife should be ok as the changes can't be made less than 10 years in advance.

This seems to provide a decent summary of the position pre election:
https://www.theprivateoffice.com/news/government-delay-rise-in-pension-age

Sarahspangles

FIREDreamer said:

Bobziz said:

Nebulous2 said:

I'm confused by your dates. If your wife is 53 by the time she retires she would have less than 4 years until she is able to access a personal pension. If she doesn't have much in the way of personal pension, then paying in what she can prior to retiring would mean she could draw it down using her personal allowance. 

I believe the earliest she can access her DB  pension will be 58 as a result of the changes planned for 2034.

Increase of SPA to 68 is in 2044 I think, not 2034 - not aware anything planned for 2034.

It had better not be 2034!