Can I use my Pension tax free lump sum to buy Premium Bonds for myself and my wife

DontCountChickins

Hi eskbanker

 (may wish to consider whether to apply for the marriage allowance if she's a low earner and you're not (but still within basic rate): 

We are married is this something I need to form for to inform HMRC. How would I do this ? or would this automatic happen once my wife bank interest increases above £1000 interest 

forgive me, I'm not very good at this.

we are just about to go out but would still appreciate your expertise so going off line for a bit

Thanks All we really do appreciate you all and I may be adding some more question over the next few days.

eskbanker

DontCountChickins said:

Hi eskbanker

 (may wish to consider whether to apply for the marriage allowance if she's a low earner and you're not (but still within basic rate): 

We are married is this something I need to form for to inform HMRC. How would I do this ? or would this automatic happen once my wife bank interest increases above £1000 interest 

forgive me, I'm not very good at this.

we are just about to go out but would still appreciate your expertise so going off line for a bit

Thanks All we really do appreciate you all and I may be adding some more question over the next few days.

It's not automatic and she'd do it rather than you, but spend some time reading through the link I posted, which has a number of pages explaining it all.

MX5huggy

Your wife should pay her total earned income for this tax year to a pension or £2880 (whichever is higher). 

Dazed_and_C0nfused

DontCountChickins said:

Hi eskbanker

 (may wish to consider whether to apply for the marriage allowance if she's a low earner and you're not (but still within basic rate): 

We are married is this something I need to form for to inform HMRC. How would I do this ? or would this automatic happen once my wife bank interest increases above £1000 interest 

forgive me, I'm not very good at this.

we are just about to go out but would still appreciate your expertise so going off line for a bit

Thanks All we really do appreciate you all and I may be adding some more question over the next few days.

It would be up to your wife to apply for Marriage Allowance.  And specify tax year(s) she is applying for.  Which may well just be this tax year, although earnings for a part year may not make it worthwhile.

All HMRC do is check if you both eligible.  A couple both earning £40k are eligible.

It is upto your wife to check if it is beneficial for her to apply.

Note she can only benefit from the savings nil rate band (£1,000 interest taxed at 0%) once she has used her Personal Allowance (£11,310 or £12,570) and any available savings starter rate band (upto £5,000 interest taxed at 0%).

leosayer

Just because you can take the tax free cash doesn't meant that you should.

This board can help you to determine the value in doing that if you provide some more details.

Albermarle

leosayer said:

Just because you can take the tax free cash doesn't meant that you should.

This board can help you to determine the value in doing that if you provide some more details.

As above.
Many people take the tax free cash 'because it's there' when they might be better off not taking it.

It depends on your general circumstances and what type of pension it is :

Defined Benefit with a guaranteed pension income ?

or Defined Contribution, which is just a pot of money?

Scrounger

LHW99 said:

You could put £2880 per annum into a personal pension / SIPP for your wife (until she is 75). Tax relief would be added by HMRC, and she could then remove £3600 (deposit + relief) and not have any tax to pay as she would still be below her personal allowance. A ~6.5% immediate increase.

Actually, it is a 25% increase (£720) for a non-taxpayer, (or 6.5% increase (£180) if a basic rate taxpayer).

Well worth doing IMO.


Scrounger

Aretnap

Albermarle said:

leosayer said:

Just because you can take the tax free cash doesn't meant that you should.

This board can help you to determine the value in doing that if you provide some more details.

As above.
Many people take the tax free cash 'because it's there' when they might be better off not taking it.

It depends on your general circumstances and what type of pension it is :

Defined Benefit with a guaranteed pension income ?

or Defined Contribution, which is just a pot of money?

Absolutely. At the moment the money is invested and growing in an entirely tax-free manner. There's no reason why you can't leave it growing and sheltered from tax in your pension until you actually have need of it. Indeed the usual advice is not to take your tax fee lump sum unless you actually need the money, and if your best idea for what to do with it is to put it inti premium bonds then it sounds like you don't really need the money in the short term.

The rush of taking the tax free lump sum and putting it in the bank (or premium bonds) is that you get a lower rate of growth/interest than you could have got by leaving it in your pension, it that you end up paying tax on that growth/interest, or both!

Cobbler_tone

Aretnap said:

Albermarle said:

leosayer said:

Just because you can take the tax free cash doesn't meant that you should.

This board can help you to determine the value in doing that if you provide some more details.

As above.
Many people take the tax free cash 'because it's there' when they might be better off not taking it.

It depends on your general circumstances and what type of pension it is :

Defined Benefit with a guaranteed pension income ?

or Defined Contribution, which is just a pot of money?

The rush of taking the tax free lump sum and putting it in the bank (or premium bonds) is that you get a lower rate of growth/interest than you could have got by leaving it in your pension, it that you end up paying tax on that growth/interest, or both!

There is an element of timing though, if you ever do 'need' the lump sum. e.g. what if you have ear marked it and we've had a couple of bad years like Covid? I guess you could mitigate that somewhat with a very low risk fund, or there might be ways to change your plans but not ideal. That said, if you are never likely to need it you may as well buy those premium bonds, or gift it out!
People who don't need their lump sums are unlikely to need, or be interested in trying to chase more and more wealth. Some people just like to sit comfortably with £100k behind them, earning the best interest they can. We've seen that some people like to clear their mortgage ASAP and won't, maybe needing that lump sum.
Then you get people like my elderly dad, who has one of his accounts (a current account with zero interest) with £30k+ in, which he allocated for a new car. Clearly never going to happen with a perfectly good car already and pushing 90. "Are you going electric Dad?!" Don't ask!

The lump sum/no lump sum is one of this boards great debates! I'm still not sure which side of the line I will land yet, probably in the middle.