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

PattiTelongo

I’m going to do something similar in the not too distant future when I take my TFLS and give my wife approximately 10k to put into hers. I don’t see it as recycling at all unless I’ve missed something? I’m leaving the taxable pension alone for now.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81871667#Comment_81871667

Yes, if the individual earns sufficient that the AA is relevant, then the employer contributions count towards that.

I was trying to draw to the OP's attention that it may not be as simple as they suggested "She has paid ~£3K into her pension this year, leaving around ~£57K of her allowance available"

squirrelpie

https://forums.moneysavingexpert.com/discussion/comment/81871679#Comment_81871679

Yes, that's correct. When you give money to your wife, she can choose to do what she wants with it. If she has enough earned income to contribute that amount to her pension, she can chose to do that.

JohnnyFlame

https://forums.moneysavingexpert.com/discussion/comment/81871500#Comment_81871500

Apologies, the word 'transfer' was not meant to suggest directly transfer from my pension to hers. It actually meant, take the money (tax free) from my pension and give it to her to add it to hers, thereby receiving an additional 20% tax relief.

For example, if I withdraw £50K and give it to her, can she then add it to her pension and receive an additional 20%, i.e. £62K is added to her pension? (assuming this is done this tax year)

Also, she will earn between £25 - £30K this year. Does that limit how much she can contribute to her pension? I thought the £60K annual allowance was for everyone, regardless of what they earn?

Secret2ndAccount

If she earns 25k she can pay in 20k and get 5k tax uplift. She can't do this for more than she earns. So, whilst she could contribute all the way up to 60k, she would have to be clear with the SIPP company that she was not entitled to any tax relief, beyond her 25k (or 30k) salary. So there's no point doing it - presumably you are contributing to a pension because of the tax relief.

Stick to the limit of 80% of her salary.

JohnnyFlame

https://forums.moneysavingexpert.com/discussion/comment/81871536#Comment_81871536

Is this true? I was not aware of this rule.

If she earns £30K, are you saying that she cannot contribute over £30K to her pension? i.e. that is her annual pension allowance?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81871838#Comment_81871838

Yes That is the point @Grumpy_chap and I were trying to get across to you (in our own ways). She is restricted by her taxable earnings in the tax year for tax relievable pension contributions. It may be theoretically possible to contribute to a pension scheme an amount on which you do NOT get tax relief but most pension schemes won't accept personal contributions which do not qualify for tax relief.

And note it is her taxable earnings not her salary (they may not be the same thing). So taxable earnings £30k pension contributions (gross) already paid £3k leaves a possible gross contribution of £27k multiply that by 80% and she can pay a pension contribution of £21.6k (the pension scheme claims tax relief to get a gross contribution of £27k)

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81871838#Comment_81871838

Yes, the maximum that an individual can contribute to their pension is their earned income.

If an individual earns £30k, that is the gross contributions, so £24k contribution plus tax relief = £30k gross into pension.

If there are employer contributions, these can be above the earned income threshold. The AA still applies.

Also, not all income is earned income. For example, BTL income or dividends is not earned income.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81871838#Comment_81871838

The confusion between the Annual Allowance and how much tax relief you can get, is a regular topic on this forum, and is one of the most common misunderstandings about pensions.

You can not add to a pension in a tax year more than you earn in that tax year, including the tax relief ( as mentioned in theory you could can add more but not get tax relief, but almost nobody does that )This is the fundamental rule of tax relief for pension contributions.

The Annual Allowance is a separate limit to effectively stop high earners, pumping large amounts into their pensions and benefitting excessively from tax relief.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/81871826#Comment_81871826

You seem to have had a lot of piecemeal answers, so to sum up:

• yes, you can withdraw tax free cash from your own pension and give the cash to your wife without any tax consequences for either of you (gifts between spouses or civil partners aren't subject to tax)
• she can pay it into her pension and get basic rate tax relief on her personal contributions
• personal contributions are limited to her gross earnings* ('earnings' being the operative word) if they are to be tax-relievable. She would pay in 80% of these and provider would claim basic rate tax relief on her behalf and add it to her defined contribution 'pot'
• most providers will not accept contributions if they are not tax-relievable
• if she is in employment, employer contributions are not limited by her earnings, but there is an overall limit (the Annual Allowance of £60K**) to the total contributions which can be made by her (including tax relief) and/or on her behalf during a tax year

*someone under the age of 75 with no earnings can still pay in up to £2,880 per tax year and get 'tax relief' at basic rate added to their pension pot even if they are a non-taxpayer

**unless there is scope to use something called carry forward, which in the case of your wife doesn't apply because she isn't earning enough to have scope to use this: https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward