Free Money? Pension For Non Earning Spouse
Discussion
Mrs IRC has no income apart from a small disability pension around £1500 per year.
She is due to take her OAP pension in April 2028. She qualifies for a full pension due to previous employment and credit for years when our children were under 18.
As I understand it she can pay £2880 into a personal pension and get £720 tax relief. I can give her the funds to do this.
If we do this for the current tax year and the next three we will get £2880 tax relief. The fund value will be £14240 before any growth.
She could then withdraw the entire amount and as 25% is tax free her personal allowance would cover the rest. In the event there was high growth she could withdraw over 2 or more years and again pay no tax
Is there anything I am missing? It is this too good to miss? I would be cashing out an ISA to get the cash to give here.
She is due to take her OAP pension in April 2028. She qualifies for a full pension due to previous employment and credit for years when our children were under 18.
As I understand it she can pay £2880 into a personal pension and get £720 tax relief. I can give her the funds to do this.
If we do this for the current tax year and the next three we will get £2880 tax relief. The fund value will be £14240 before any growth.
She could then withdraw the entire amount and as 25% is tax free her personal allowance would cover the rest. In the event there was high growth she could withdraw over 2 or more years and again pay no tax
Is there anything I am missing? It is this too good to miss? I would be cashing out an ISA to get the cash to give here.
Edited by irc on Sunday 11th February 13:46
irc said:
Mrs IRC has no income apart from a small disability pension around £1500 per year.
She is due to take her OAP pension in April 2028. She qualifies for a full pension due to previous employment and credit for years when our children were under 18.
As I understand it she can pay £2880 into a personal pension and get £720 tax relief. I can give her the funds to do this.
If we do this for the current tax year and the next three we will get £2880 tax relief. The fund value will be £1440 before any growth.
She could then withdraw the entire amount and as 25% is tax free her personal allowance would cover the rest. In the event there was high growth she could withdraw over 2 or more years and again pay no tax
Is there anything I am missing? It is this too good to miss? I would be cashing out an ISA to get the cash to give here.
Nope nothing being missed. I do the same.She is due to take her OAP pension in April 2028. She qualifies for a full pension due to previous employment and credit for years when our children were under 18.
As I understand it she can pay £2880 into a personal pension and get £720 tax relief. I can give her the funds to do this.
If we do this for the current tax year and the next three we will get £2880 tax relief. The fund value will be £1440 before any growth.
She could then withdraw the entire amount and as 25% is tax free her personal allowance would cover the rest. In the event there was high growth she could withdraw over 2 or more years and again pay no tax
Is there anything I am missing? It is this too good to miss? I would be cashing out an ISA to get the cash to give here.
People run around looking at highly taxed BTL when this is what they should be focussing on if they've got a non earning spouse.
The earlier you start the better the deal. Free money from the government on the way in; tax free lump sum and tax free income on the way out.
Don't forget state pension is taxable so once that kicks in the available headroom for tax free income may reduce significantly. Juggle the pieces correctly and there's some good hay to be made while the sun's shining. For instance, the spouse can draw tax free pension income and immediately reinvest it in tax free ISA if you want to keep the party rolling rather than start spending.
The earlier you start the better the deal. Free money from the government on the way in; tax free lump sum and tax free income on the way out.
Don't forget state pension is taxable so once that kicks in the available headroom for tax free income may reduce significantly. Juggle the pieces correctly and there's some good hay to be made while the sun's shining. For instance, the spouse can draw tax free pension income and immediately reinvest it in tax free ISA if you want to keep the party rolling rather than start spending.
ian_c_uk said:
If you already have the money in an ISA that you want to use, then this appears sensible.
However, if one person was a higher rate taxpayer, it may be beneficial to add extra there first to achieve greater tax relief - unless this is already maxed out?
Already covered. Contributed enough to dodge the SNP 42% between £43k and £50k. However, if one person was a higher rate taxpayer, it may be beneficial to add extra there first to achieve greater tax relief - unless this is already maxed out?
So we have started doing this. Have put in £2800 for last tax year and same again this tax year. Mrs IRC will get her OAP in April 2028. So for the 2027-2028 tax year can we put another £2800 in, get the £700 tax relief, then cash in the pension the same year?
IE are there any rules about getting tax relief then withdrawing it during the same tax year?
We want the money out the pension before she starts claiming OAP so there is no tax payable at all; on the way out as her personal allowance and the 25% free portion would cover it.
IE are there any rules about getting tax relief then withdrawing it during the same tax year?
We want the money out the pension before she starts claiming OAP so there is no tax payable at all; on the way out as her personal allowance and the 25% free portion would cover it.
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