Small SIPP?

cdbe11

I'm 55 in May, I don't work but have income from property and pay a small amount of basic rate tax. 

I understand I can put a small amount of cash into a pension to claim tax relief (this would be my main reason for doing it, not for any great returns). Is this a good idea and who should I use? I'd like a low risk fit and forget solution. And I'd like to do this for the next 5 years (I have a deferred CS pension to take at 60). Can I withdraw 25% tax free every year from May and should I start this tax year?

The money is currently earning base rate plus 1% (tax free) in a savings account.

I think my wife (52) needs to open one as well - she has crept into the 40% bracket and we claim child benefit so she needs to loose a few £k, however we are considering putting most of her salary into a pension (with a view to her retiring at 55 and to reduce our kids student maintenance contribution) so should she consider something slightly different? 

Thanks.

Marcon

cdbe11 said:

I'm 55 in May, I don't work but have income from property and pay a small amount of basic rate tax. 

I understand I can put a small amount of cash into a pension to claim tax relief (this would be my main reason for doing it, not for any great returns). Is this a good idea and who should I use? I'd like a low risk fit and forget solution. And I'd like to do this for the next 5 years (I have a deferred CS pension to take at 60). Can I withdraw 25% tax free every year from May and should I start this tax year?

The money is currently earning base rate plus 1% (tax free) in a savings account.

I think my wife (52) needs to open one as well - she has crept into the 40% bracket and we claim child benefit so she needs to loose a few £k, however we are considering putting most of her salary into a pension (with a view to her retiring at 55 and to reduce our kids student maintenance contribution) so should she consider something slightly different? 

Thanks.

Why a SIPP if you want an 'invest and forget' pension? A non-SIPP personal pension or a stakeholder would fit your aims better. With no relevant earnings (rent doesn't count), you can invest £2,880 and the pension provider will claim basic rate tax relief on your behalf and add this to your post.

Yes, you can make withdrawals of the tax free cash each year. Whether you start contributing this tax year is up to you - if you have the cash available, no reason not to.

Is there a reason why your wife doesn't want to make more contributions to her workplace pension? If it offers salary sacrifice, she'd get an NI saving as well as the income tax saving.

Sounds like some basic reading would be no bad idea for you both. Try https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics

Sam_666

As a landlord, you can pay voluntary NI class 2, just under £180 p/y. Almost free money.

molerat

Sam_666 said:

As a landlord, you can pay voluntary NI class 2, just under £180 p/y. Almost free money.

Not quite as simple as that

https://www.gov.uk/renting-out-a-property/paying-tax

Marcon

Sam_666 said:

As a landlord, you can pay voluntary NI class 2, just under £180 p/y. Almost free money.

Rental income is typically regarded as investment income, not earnings. Needless to say there are exceptions(!) but it isn't quite as simple as you might think/hope.

cdbe11

Thanks, I've been down the NI rabbit hole before. I'm only one year short of a full set of contributions and I'm hoping my offspring will produce a grandchild I can care for at some point in the next 12 years.

Wife is a teacher - there's something going on with TPS and McCloud about the possibility of buying AP in the old scheme (which we were considering at the relevant time) so we're hanging fire on that, and also slightly reluctant to sign away to much in that as we have adult children who would lose out if we get hit by a bus.

I've done my bit of homework now and looks like the basic personal pension is best - any recommendations initially small sums just to benefit from tax relief?  But, we may want to put a significant amount (120k)  in over the next 2-3 years (this time to protect us from 10k a year student maintenance loan contributions) - so don't know if that makes a difference?


Thanks 

Marcon

cdbe11 said:

Thanks, I've been down the NI rabbit hole before. I'm only one year short of a full set of contributions and I'm hoping my offspring will produce a grandchild I can care for at some point in the next 12 years.

Wife is a teacher - there's something going on with TPS and McCloud about the possibility of buying AP in the old scheme (which we were considering at the relevant time) so we're hanging fire on that, and also slightly reluctant to sign away to much in that as we have adult children who would lose out if we get hit by a bus.

I've done my bit of homework now and looks like the basic personal pension is best - any recommendations initially small sums just to benefit from tax relief?  

Stakeholder pensions (Aviva and Standard Life are open to new direct retail business, so no adviser needed) accept sums as small as £20 (you pay £16, they top up with basic rate tax relief to the £20). Other personal pensions have higher levels of minimum contribution, so much depends on how small 'small' is?

cdbe11 said:

But, we may want to put a significant amount (120k)  in over the next 2-3 years (this time to protect us from 10k a year student maintenance loan contributions) - so don't know if that makes a difference?


Thanks 

If you have no earnings, you are limited to £3,600 gross (ie you pay in £2,880, provider tops up to £3,600) per year to get tax relief.

Anything above that would rely on your wife having sufficient earnings if she wants to get tax relief; and sufficient 'headroom' in terms of the annual allowance (£60K, minus whatever has already been 'used up' by TPS membership), unless she can use carry forward: https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward (NB: she must have sufficient earnings in the tax year she makes the contribution to get tax relief).

Albermarle

Stakeholder pensions (Aviva and Standard Life are open to new direct retail business, so no adviser needed) accept sums as small as £20 (you pay £16, they top up with basic rate tax relief to the £20). Other personal pensions have higher levels of minimum contribution, so much depends on how small 'small' is?

Some others that do not need advisor involvement, will accept £25 payments ( £20 from you and £5 tax relief) 
Fidelity and A J Bell for example, although I think in both cases it has to be a regular monthly payment by direct debit, to avoid extra charges.

Sam_666

molerat said:

Sam_666 said:

As a landlord, you can pay voluntary NI class 2, just under £180 p/y. Almost free money.

Not quite as simple as that

https://www.gov.uk/renting-out-a-property/paying-tax

Absolutely, taxman doesnt make anything easy. But its worth fighting for.

examples from hmrc:

• being a landlord is your main job
• you rent out more than one property
• you’re buying new properties to rent out

Its one of above, not ALL of above.

Sam_666

Marcon said:

Sam_666 said:

As a landlord, you can pay voluntary NI class 2, just under £180 p/y. Almost free money.

Rental income is typically regarded as investment income, not earnings. Needless to say there are exceptions(!) but it isn't quite as simple as you might think/hope.

I got no idea what you mean. Type of income is irrelevant, its about type of activity, i.e. Landlord.
See link posted above by molerat.

Marcon

Albermarle said:

Stakeholder pensions (Aviva and Standard Life are open to new direct retail business, so no adviser needed) accept sums as small as £20 (you pay £16, they top up with basic rate tax relief to the £20). Other personal pensions have higher levels of minimum contribution, so much depends on how small 'small' is?

Some others that do not need advisor involvement, will accept £25 payments ( £20 from you and £5 tax relief) 
Fidelity and A J Bell for example, although I think in both cases it has to be a regular monthly payment by direct debit, to avoid extra charges.

...and there's a minimum 'opening payment' of £500 for their 'Ready Made' pension.

I don't think Fidelity still offers a non-SIPP pension, although you are of course right about the mininum payment to their SIPP - it has to be a regular contribution, otherwise it's an £800 contribution to open their SIPP.