Post retirement pension intake and output

ClashCityRocker1

A question for the hive mind (might be just my mind failing)

When I retire fully I'll have total pension income of, say, £40K and an AVC partly in drawdown with say £60K in it.

So in a tax year if my pensions were £40K I could take circa £10K taxable from drawdown and avoid 40% tax.

Now elsewhere on this clever forum it has been mentioned that even with no income you can pay £3600 (£2880 net) into a pension each year. 

My question is does the £3600 you pay into a pension vehicle free up that £3600 so you can with drew it in addition to the £10K previously mentioned? And would I have to do a tax return if I did that?

Or would HMRC see £40k pension income, 13600 taxable withdrawn and 3600 gross paid in and work it out for themselves?

Marcon

ClashCityRocker1 said:

A question for the hive mind (might be just my mind failing)

When I retire fully I'll have total pension income of, say, £40K and an AVC partly in drawdown with say £60K in it.

So in a tax year if my pensions were £40K I could take circa £10K taxable from drawdown and avoid 40% tax.

Now elsewhere on this clever forum it has been mentioned that even with no income you can pay £3600 (£2880 net) into a pension each year. 

1. My question is does the £3600 you pay into a pension vehicle free up that £3600 so you can with drew it in addition to the £10K previously mentioned? 2. And would I have to do a tax return if I did that?

Or would HMRC see £40k pension income, 13600 taxable withdrawn and 3600 gross paid in and work it out for themselves?

1. Not sure quite what you mean by 'free up', but you can withdraw it in addition to the £10K and 25% will be tax free (assuming you've not hit the maximum (https://www.gov.uk/tax-on-pension/tax-free), the rest taxable at your marginal rate.
2. No. The provider will deduct emergency rate tax when they don't have a tax code for you, and advise HMRC of the payment in due course, with any necessary adjustment to your tax code being made sooner or later(!).

DE_612183

Are you saying you will take £40k per annum?

If so £10k will be tax free ( as TFLS ) the next £12570 will also be tax free ( personal allowance ), then the next £37k will be @ 20%.

You can then pay in £2880 into a pension and the nice government will top that up to £3600 which I guess you could say is like getting another £2880 tax free - but you'll pay tax on it again when you take out so it may be better to just leave it where it is, unless you see your income reducing in the future...

SVaz

I think you’ll find that the £3600 into a pension is mentioned VERY often,  especially in regard to the yearly in/out dance to get £750 free money. 

Albermarle

ClashCityRocker1 said:

A question for the hive mind (might be just my mind failing)

When I retire fully I'll have total pension income of, say, £40K and an AVC partly in drawdown with say £60K in it.

So in a tax year if my pensions were £40K I could take circa £10K taxable from drawdown and avoid 40% tax.

Now elsewhere on this clever forum it has been mentioned that even with no income you can pay £3600 (£2880 net) into a pension each year. 

My question is does the £3600 you pay into a pension vehicle free up that £3600 so you can with drew it in addition to the £10K previously mentioned? And would I have to do a tax return if I did that?

Or would HMRC see £40k pension income, 13600 taxable withdrawn and 3600 gross paid in and work it out for themselves?

HMRC would see £40K pension income - £10K taxable from AVC and £2700 taxable from the new pension ( 25% of the £3600 would be tax free ) .
So £52,700 in total taxable income.

ClashCityRocker1

Albermarle said:

ClashCityRocker1 said:

A question for the hive mind (might be just my mind failing)

When I retire fully I'll have total pension income of, say, £40K and an AVC partly in drawdown with say £60K in it.

So in a tax year if my pensions were £40K I could take circa £10K taxable from drawdown and avoid 40% tax.

Now elsewhere on this clever forum it has been mentioned that even with no income you can pay £3600 (£2880 net) into a pension each year. 

My question is does the £3600 you pay into a pension vehicle free up that £3600 so you can with drew it in addition to the £10K previously mentioned? And would I have to do a tax return if I did that?

Or would HMRC see £40k pension income, 13600 taxable withdrawn and 3600 gross paid in and work it out for themselves?

HMRC would see £40K pension income - £10K taxable from AVC and £2700 taxable from the new pension ( 25% of the £3600 would be tax free ) .
So £52,700 in total taxable income.

Ah! That's what I was wondering - so I'd have to submit a tax return to avoid paying 40% on the £2700 (?)

Marcon

ClashCityRocker1 said:

Albermarle said:

ClashCityRocker1 said:

A question for the hive mind (might be just my mind failing)

When I retire fully I'll have total pension income of, say, £40K and an AVC partly in drawdown with say £60K in it.

So in a tax year if my pensions were £40K I could take circa £10K taxable from drawdown and avoid 40% tax.

Now elsewhere on this clever forum it has been mentioned that even with no income you can pay £3600 (£2880 net) into a pension each year. 

My question is does the £3600 you pay into a pension vehicle free up that £3600 so you can with drew it in addition to the £10K previously mentioned? And would I have to do a tax return if I did that?

Or would HMRC see £40k pension income, 13600 taxable withdrawn and 3600 gross paid in and work it out for themselves?

HMRC would see £40K pension income - £10K taxable from AVC and £2700 taxable from the new pension ( 25% of the £3600 would be tax free ) .
So £52,700 in total taxable income.

Ah! That's what I was wondering - so I'd have to submit a tax return to avoid paying 40% on the £2700 (?)

No. See https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

ClashCityRocker1

Marcon said:

ClashCityRocker1 said:

Albermarle said:

ClashCityRocker1 said:

A question for the hive mind (might be just my mind failing)

When I retire fully I'll have total pension income of, say, £40K and an AVC partly in drawdown with say £60K in it.

So in a tax year if my pensions were £40K I could take circa £10K taxable from drawdown and avoid 40% tax.

Now elsewhere on this clever forum it has been mentioned that even with no income you can pay £3600 (£2880 net) into a pension each year. 

My question is does the £3600 you pay into a pension vehicle free up that £3600 so you can with drew it in addition to the £10K previously mentioned? And would I have to do a tax return if I did that?

Or would HMRC see £40k pension income, 13600 taxable withdrawn and 3600 gross paid in and work it out for themselves?

HMRC would see £40K pension income - £10K taxable from AVC and £2700 taxable from the new pension ( 25% of the £3600 would be tax free ) .
So £52,700 in total taxable income.

Ah! That's what I was wondering - so I'd have to submit a tax return to avoid paying 40% on the £2700 (?)

No. See https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

I'm confused now - tax will already have been deducted from my pension and it will be deducted from my withdrawal and I'll get tax relief added back to my contribution. What would i be claiming? In fact, unless they adjust my tax code for for pensions or withdrawal I will have paid the right amount of tax ( i just want to avoid HMRC deciding I owe more tax)

DRS1

@Marcon was just responding to your comment about needing to do a tax return.  You can submit the form instead.

If you don't then you will be treated as going into higher rate at £50270.

The pension contribution when claimed will increase the higher rate threshold by £3600.  So getting £52700 of taxable income would be within basic rate (well in England it would)

I must admit I don't know if that translates into a tax code adjustment (which I think @Marcon suggests it does in an earlier post) or a refund of tax.

Marcon

DRS1 said:

@Marcon was just responding to your comment about needing to do a tax return.  You can submit the form instead.

Thanks @DRS1. That's exactly what I was doing!

DRS1 said:

If you don't then you will be treated as going into higher rate at £50270.

The pension contribution when claimed will increase the higher rate threshold by £3600.  So getting £52700 of taxable income would be within basic rate (well in England it would)

I must admit I don't know if that translates into a tax code adjustment (which I think @Marcon suggests it does in an earlier post) or a refund of tax.

I couldn't work out what OP was driving at in their first post - the penny's dropped (at least for me) now they have clarified. Could be either a tax code adjustment or a straightforward repayment of higher rate tax on their pension contribution.

ClashCityRocker1 said:

Marcon said:

ClashCityRocker1 said:

Albermarle said:

ClashCityRocker1 said:

A question for the hive mind (might be just my mind failing)

When I retire fully I'll have total pension income of, say, £40K and an AVC partly in drawdown with say £60K in it.

So in a tax year if my pensions were £40K I could take circa £10K taxable from drawdown and avoid 40% tax.

Now elsewhere on this clever forum it has been mentioned that even with no income you can pay £3600 (£2880 net) into a pension each year. 

My question is does the £3600 you pay into a pension vehicle free up that £3600 so you can with drew it in addition to the £10K previously mentioned? And would I have to do a tax return if I did that?

Or would HMRC see £40k pension income, 13600 taxable withdrawn and 3600 gross paid in and work it out for themselves?

HMRC would see £40K pension income - £10K taxable from AVC and £2700 taxable from the new pension ( 25% of the £3600 would be tax free ) .
So £52,700 in total taxable income.

Ah! That's what I was wondering - so I'd have to submit a tax return to avoid paying 40% on the £2700 (?)

No. See https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

I'm confused now - tax will already have been deducted from my pension and it will be deducted from my withdrawal and I'll get tax relief added back to my contribution. What would i be claiming? In fact, unless they adjust my tax code for for pensions or withdrawal I will have paid the right amount of tax ( i just want to avoid HMRC deciding I owe more tax)

You'd be claiming higher rate tax relief on your pension contributions.

Dazed_and_C0nfused

DRS1 said:

@Marcon was just responding to your comment about needing to do a tax return.  You can submit the form instead.

If you don't then you will be treated as going into higher rate at £50270.

The pension contribution when claimed will increase the higher rate threshold by £3600.  So getting £52700 of taxable income would be within basic rate (well in England it would)

I must admit I don't know if that translates into a tax code adjustment (which I think @Marcon suggests it does in an earlier post) or a refund of tax.

It depends when you make the claim for higher rate relief.

HMRC only ever give the higher rate pension relief in a tax code for contributions which are for the same tax year as the tax code.  So if you only tell them about RAS contributions for 24/25 today you are too late for a tax code adjustment.

They would simply include the relief in their annual EOY calculation and refund any overpaid tax (for people who don't need to file a tax return).

They may then provisionally update the current year's tax code on the basis you are continuing to make similar contributions again this tax year.  But that may have changed now this new online system is in place 🤷