Placing an inherited lump sum into and annuity

Dazed_and_C0nfused

LHW99 said:

Secret2ndAccount said:

LHW99 said:   AFAIK,you cannot make use of the 3 years carry back allowance unless in this financial year you earn more than £60k. It's dependent on earnings, not on how much you (want to) put into the pension.

Albermarle said:  Yes and as the OP as no employment income and can only add £3600 gross per year to a pension, then the point made was pretty irrelevant.

Come on guys, you know better than this. Simple example: I earn 100k. I salary sacrifice 75k into my pension, and my employer adds 10k. I have earned 25k, and added 85k to my pension.  In other cases, a DB can have a PIA in a year in which you earn nothing at all. The AA rules make no stipulation at all about earnings.

Albermarle, please read my post. Unrelievable Contributions. You know that the usual limit we discuss is for receipt of tax relief. It is not an upper limit on pension contributions.

Zagfles is gonna be so mad at you two

Simple Example - You earn £100k. It doesn't matter that you have sacrificed so that you end up with £85k in your pension, it's the £100k employment income that counts. You can use carry back, if your current year's income exceeds £60k, and you have spare allowance from previous years.

The OP doesn't have "relevant" (employment) income, therefore they cannot use carry back.

I think you mean carry forward.  Carry back was abolished a very long time ago now.

NoMore

LHW99 said:

Secret2ndAccount said:

LHW99 said:   AFAIK,you cannot make use of the 3 years carry back allowance unless in this financial year you earn more than £60k. It's dependent on earnings, not on how much you (want to) put into the pension.

Albermarle said:  Yes and as the OP as no employment income and can only add £3600 gross per year to a pension, then the point made was pretty irrelevant.

Come on guys, you know better than this. Simple example: I earn 100k. I salary sacrifice 75k into my pension, and my employer adds 10k. I have earned 25k, and added 85k to my pension.  In other cases, a DB can have a PIA in a year in which you earn nothing at all. The AA rules make no stipulation at all about earnings.

Albermarle, please read my post. Unrelievable Contributions. You know that the usual limit we discuss is for receipt of tax relief. It is not an upper limit on pension contributions.

Zagfles is gonna be so mad at you two

Simple Example - You earn £100k. It doesn't matter that you have sacrificed so that you end up with £85k in your pension, it's the £100k employment income that counts. You can use carry back, if your current year's income exceeds £60k, and you have spare allowance from previous years.

The OP doesn't have "relevant" (employment) income, therefore they cannot use carry back.

It's not carry back, its carry forward, and the amount of carry forward is not related to your earnings. I don't know why you keep saying it is. The amount of tax relief you can claim is related to your earnings but that's a different thing. 

Simple example, you earn 50k, your employer is generous and contributes 20k into your pension (or more likely you have a DB PIA of 20k). You can contribute all of the 50k (40k net) into the pension, meaning you have broken the AA of 60k (total contributions are 70k in the pension this year) but that's ok because you have carry forward available. So in this case you have used carry forward without earning more than 60k.

This a bit OT for the OP as in their circumstance they can't use carry forward but it's important that other people learn how it works correctly because there are still too many people who misunderstand it. 

DRS1

"This a bit OT for the OP as in their circumstance they can't use carry forward but it's important that other people learn how it works correctly because there are still too many people who misunderstand it. "

I thought the suggestion being made by @Secret2ndAccount was that they could use it.

Just when you think you have a grip on this stuff it escapes like a bar of wet soap.

NoMore

DRS1 said:

"This a bit OT for the OP as in their circumstance they can't use carry forward but it's important that other people learn how it works correctly because there are still too many people who misunderstand it. "

I thought the suggestion being made by @Secret2ndAccount was that they could use it.

Just when you think you have a grip on this stuff it escapes like a bar of wet soap.

Having re read the thread, yes secrets suggestion is technically possible but I’m not sure if it helps. Usually it’s a bad idea to pay in to a pension via relief at source and not get tax relief as you’re opening yourself up to income tax that previously you wouldn’t need to pay when withdrawing. Doing it to buy an annuity is a twist in the tail that I’m not sure if it’s an advantage to do it or not. 

LHW99

Thanks @Dazed_and_C0nfused and @NoMore - you are right, post edited

Bumdle

I realise now that there is no point in buying a standard annuity as i get taxed on all the income and there is no tax added to my annuity because i am not employed. My current income is simply a £4000 pa company pension and the normal state pension. 
It seems to me that putting £100k into a purchased life annuity with say 3% growth is a good option because I only get taxed on the interest not the capital.  It is safe and secure in the long term and as i own my house and have no debts is enough for me to comfortably live on. The rest of my inheritance is another matter but i guess safety first !  Any comments , good or bad are very welcome. 

Dazed_and_C0nfused

Bumdle said:

I realise now that there is no point in buying a standard annuity as i get taxed on all the income and there is no tax added to my annuity because i am not employed. My current income is simply a £4000 pa company pension and the normal state pension. 
It seems to me that putting £100k into a purchased life annuity with say 3% growth is a good option because I only get taxed on the interest not the capital.  It is safe and secure in the long term and as i own my house and have no debts is enough for me to comfortably live on. The rest of my inheritance is another matter but i guess safety first !  Any comments , good or bad are very welcome. 

One potential bonus from a PLA is that the taxable income element is treated as savings interest, not pension income.

So depending on your other taxable interest some of the taxable element might ultimately* be taxed at 0%.

*I think 20% is always deducted at source but you can claim a refund from HMRC if one is due.

https://www.litrg.org.uk/savings-property/tax-savings-and-investments/purchased-life-annuities

xylophone

https://www.sharingpensions.co.uk/annuity_quote_purchased.htm
Might be worth a read.