Can I withdraw tax free cash from my pension and transfer to my wife's pension?

JohnnyFlame

Hi all,

any general feedback is appreciated.

My wife (56) is retiring this tax year (end of March 2026). She has paid ~£3K into her pension this year, leaving around ~£57K of her allowance available.

I am also 56. I have a pension pot, but I have not taken anything from it yet.

We are trying to achieve an income from her pension of ~£1,200 per month but to do that she will need a cash injection into her pension. We dont have spare cash, but I was wondering if it is legal to take money from my pension via flexible drawdown and transfer it to hers.

Is it legal?

Are there any tax implications to either of us?

Do I need to notify HMRC so that my tax code is not affected?

As mentioned, any advise is appreciated. I do have a Pension Wise call next week, but looking for 'heads up' beforehand..

Thanks in anticipation…

Marcon

https://forums.moneysavingexpert.com/discussion/6653985/can-i-withdraw-tax-free-cash-from-my-pension-and-transfer-to-my-wife-039-s-pension

You can't transfer money from your pension to hers. What you can do is take money from your DC pension, which will be taxed based on whether you are simply taking tax free cash, and/or tax free + taxable cash. Remember that if you take any taxable cash you will trigger the Money Purchase Annual Allowance, which will restrict you to £10K a year contributions to your DC plan, including tax relief/any employer contribution.

You can then give cash to her to pay into her pension, provided she has sufficient earnings to cover the extra contribution. You refer to her having £57K of her allowance available, so presumably she is earning at least £60K in the current tax year?

Silvertabby

You can't do a 'your pension' to 'her pension' direct transfer. The only way would to be for you to take money from your pension, and pay any tax due. Then hand the remaining cash to your wife to do with what she wants - which could include paying it into her own pension, subject to her own limits.

DRS1

When @Marcon says you trigger the MPAA if you take any tax free cash he means if you take any taxable cash.

As an aside you also need to consider if your wife has taxable earnings this tax year. That will put a limit on the amount of tax relievable pension contributions she can make (and that may be less than the £60k you have in mind)

Grumpy_chap

You can draw from your pension subject to the appropriate rules and income tax (which may be zero).

You can gift the money to your wife.

Subject to applicable limits, she can make pension contributions. The £60k Annual Allowance is only relevant if she has earned income this year above £60k. Otherwise, the limit is whatever she has as earned income. Pension contributions limits are expressed as gross amounts and includes any employer contributions.

DRS1

When @Grumpy_chap says "and includes any employer contributions" I think he means "and includes any tax relief reclaimed by the pension scheme". So your wife would make a net contribution of £800 and the scheme would reclaim £200 to make a gross contribution of £1000.

Or he could have meant that the employer contributions count against the £60k annual allowance.

Moonwolf

A general question for the forum. Could this be used as a trick to get around recycling rules?

The title says tax free cash, if you withdraw tax free cash and put it in your own pension you risk falling foul of recycling rules.

If you do the same but pass to your husband or wife, does it dodge those rules?

Marcon

https://forums.moneysavingexpert.com/discussion/comment/81871596#Comment_81871596

There's no 'trick' about it. Recycling rules apply only to cash you withdraw from your own pension and then pay into a pension arrangement of your own.

What HMRC doesn't swallow is husband and wife each withdrawing tax free cash and kindly giving it to each other(!) to reinvest in their pension…

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/81871596#Comment_81871596

as far as I am concerned it does. As our pensions were a bit unbalanced we took pre-emptive action around OH hitting LTA as it was then which gave us the money to support much bigger pension contributions for me in the last few years. It was a gift to me, not pension recycling in any way, and I could have spent it on a flock of Pygmy goats if I had chosen.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81871564#Comment_81871564

Employer contributions count towards the total contributions made so, if an individual earns sufficient that the AA threshold (£60k, may be increased if carry-forward is available), then that employer contribution counts towards the AA limits.

My previous comment "limits are expressed as gross amounts" refers to the tax relief as you have described.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81871652#Comment_81871652

Yes but the taxable earnings in a tax year only affect the employee contributions not the employer contributions. So if she has taxable earnings of £40k in the tax year then the gross employee contributions can be £40k. You don't have to deduct whatever the employer has contributed. Sure if the employer has contributed more than £20k then you would start to worry about the annual allowance and the total contributions and carry forward.