Private Pension - Non Earner
Discussion
My wife has stopped working this year due to ill health. Currently has no income but has a few thousand in an ISA. Aged over 55.
I understand that non earners can still pay £2,880 per year into a private pension and get tax relief bringing it up to £3500.
So could she do this starting next tax year for say 3 years then cash it in while it was still below her annual tax allowance? Seems like free cash. Or is there rules to prevent this?
Only other relevant bit is that she took a small pension pot (under £10k) as cash this year.
I understand that non earners can still pay £2,880 per year into a private pension and get tax relief bringing it up to £3500.
So could she do this starting next tax year for say 3 years then cash it in while it was still below her annual tax allowance? Seems like free cash. Or is there rules to prevent this?
Only other relevant bit is that she took a small pension pot (under £10k) as cash this year.
irc said:
My wife has stopped working this year due to ill health. Currently has no income but has a few thousand in an ISA. Aged over 55.
I understand that non earners can still pay £2,880 per year into a private pension and get tax relief bringing it up to £3500.
So could she do this starting next tax year for say 3 years then cash it in while it was still below her annual tax allowance? Seems like free cash. Or is there rules to prevent this?
Only other relevant bit is that she took a small pension pot (under £10k) as cash this year.
I am still contributing into a private pension whilst drawing on a final salary one. The only thing to remember is that when she comes to take the pension, only 25% will be tax free with the rest being treated as income. So as long as her overall income at that stage is less than the PA, then there should be no tax payable I understand that non earners can still pay £2,880 per year into a private pension and get tax relief bringing it up to £3500.
So could she do this starting next tax year for say 3 years then cash it in while it was still below her annual tax allowance? Seems like free cash. Or is there rules to prevent this?
Only other relevant bit is that she took a small pension pot (under £10k) as cash this year.
There is a rule to prevent ‘recycling’ to some extent, the Money Purchase Annual Allowance, if you’ve taken money out from a Money Purchase scheme you’re then have a much reduced annual amount you can still save, £4,000 instead of the usual £40,000.
Though given the amounts you’re talking about it’s a somewhat moot point.
Though given the amounts you’re talking about it’s a somewhat moot point.
HMRC are becoming increasingly vigilant about money being taken tax free from pension pots and then recycled back into contributions to claim another 25% top up. The 10k your wife took last year could be used for this in HMRC s eyes. HMRC can levy 40% tax and additional
charges on people who churn their pension pots in this manner.
charges on people who churn their pension pots in this manner.
konark said:
HMRC are becoming increasingly vigilant about money being taken tax free from pension pots and then recycled back into contributions to claim another 25% top up. The 10k your wife took last year could be used for this in HMRC s eyes. HMRC can levy 40% tax and additional
charges on people who churn their pension pots in this manner.
So would it be wise to keep documents showing a withdrawal of say £2750 from her ISA (which predates her pension cash in) being immediatley put into a pension? charges on people who churn their pension pots in this manner.
In any case her pension she cashed was between £5 and £6k. So according to this link as it is under £7500 the recycling provisions do not apply. But any opinions welcome.
https://www.pensionsadvisoryservice.org.uk/about-p...
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