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Tax Claim from a Pension

vrdiver
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Re: Tax Claim from a Pension

#336626

Postby vrdiver » August 28th, 2020, 3:38 pm

terminal7 wrote:effectively providing 25% annual interest on an initial £2,880 investment.

(my bold)

Actually, the above is not really making your money work that hard.

You can pay in a monthly £240 and withdraw a monthly £360 (ignoring the initial delay of the tax recovery). This gives your £240 a monthly return of 25%, or annual return of 300%

It's also a much better cashflow solution for those who want the rest of their cash to be working elsewhere.

VRD

(OK, fees and transaction delays, tax recovery delays etc. make the headline 25% per month untrue, but it's a pleasant thought, and if carried on over multiple years gets close! Alternatively, also assumes you are piggybacking on an existing SIPP, so the minimum investment is already in place, and the fees already covered)

swill453
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Re: Tax Claim from a Pension

#336635

Postby swill453 » August 28th, 2020, 4:07 pm

vrdiver wrote:Actually, the above is not really making your money work that hard.

You can pay in a monthly £240 and withdraw a monthly £360 (ignoring the initial delay of the tax recovery). This gives your £240 a monthly return of 25%, or annual return of 300%

If you're allowed that assumption ("ignoring the initial delay of the tax recovery") then you can deposit £2880 then immediately withdraw £3600, then invest that elsewhere for the rest of the year...

But this is just fiddling about with what is basically the same return.

Scott.

Joe45
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Re: Tax Claim from a Pension

#346631

Postby Joe45 » October 10th, 2020, 6:22 am

I'm about to enter retirement, and at that point neither I nor Mrs 45 will have any taxable income. I plan therefore to commence drawdown.

My conclusion from the above posts is that each of us can make an annual contribution of £2,880 net into our SIPPs, and receive £720 from HMRC. Can't see any down-side.

PinkDalek
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Re: Tax Claim from a Pension

#346676

Postby PinkDalek » October 10th, 2020, 10:06 am

Joe45 wrote:I'm about to enter retirement, and at that point neither I nor Mrs 45 will have any taxable income. I plan therefore to commence drawdown.

My conclusion from the above posts is that each of us can make an annual contribution of £2,880 net into our SIPPs, and receive £720 from HMRC. Can't see any down-side.


See the second item linked below which I believe covers it:

https://www.hl.co.uk/retirement/drawdown/faqs

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Re: Tax Claim from a Pension

#346680

Postby swill453 » October 10th, 2020, 10:09 am

PinkDalek wrote:
Joe45 wrote:I'm about to enter retirement, and at that point neither I nor Mrs 45 will have any taxable income. I plan therefore to commence drawdown.

My conclusion from the above posts is that each of us can make an annual contribution of £2,880 net into our SIPPs, and receive £720 from HMRC. Can't see any down-side.


See the second item linked below which I believe covers it:

https://www.hl.co.uk/retirement/drawdown/faqs

That doesn't seem to address the £2880 net (£3600 gross) contribution that Joe45 is talking about (correctly, BTW).

Scott.

Alaric
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Re: Tax Claim from a Pension

#346682

Postby Alaric » October 10th, 2020, 10:11 am

PinkDalek wrote:See the second item linked below which I believe covers it:


You don't get tax relief on the amounts put in beyond the age of 75.

From the link
Yes, you can still make pension contributions. You’ll still receive tax relief on personal contributions provided you’re within your contribution limits and you’re under 75.

PinkDalek
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Re: Tax Claim from a Pension

#346686

Postby PinkDalek » October 10th, 2020, 10:19 am

Yes it mentions 75 & not the £2,880 specifically but the extract from Alaric has a (missing) link within to contribution limits (which does):

https://www.hl.co.uk/pensions/contributions

ursaminortaur
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Re: Tax Claim from a Pension

#346708

Postby ursaminortaur » October 10th, 2020, 12:33 pm

gadgetmind wrote:My wife has been both contributing to her SIPP (£2880/£3600 or her entire earnings for the year if larger than £3600 (netted down when paid in)) for a decade or two, and for the last 2-3 years has also been taking a monthly income from her SIPP. This avoids the inconvenience of claiming back the tax but you have to be happy with monthly income.

If did seem odd for her to shove £8k pa in there on which she'd paid no tax, for HMRC to then add £2k, and her to not pay any tax on the way out, but tax is odd and we just accept it for what it is.


Hopefully now that she is taking a monthly income from her SIPP she realises that she can now only contribute a maximum of £4,000 gross even if her earnings are more than that.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/money-purchase-annual-allowance-mpaa/

The MPAA (money purchase annual allowance) was introduced with pension freedoms and this limits the amount of money which can be contributed to a money purchase scheme once pensions have been flexibly accessed before a tax charge is payable.
.
.
.
The Money Purchase Annual Allowance was:

£10,000 for tax years 2015/16 and 2016/17; and

£4,000 for tax year 2017/18 and to date.

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Re: Tax Claim from a Pension

#356956

Postby gadgetmind » November 16th, 2020, 10:43 am

Hopefully now that she is taking a monthly income from her SIPP she realises that she can now only contribute a maximum of £4,000 gross even if her earnings are more than that.


Yes, our timing was right, more by luck than judgement as we got an unexpected chunk of income just as she was nearing retirement, but since starting drawdown she's stuck to £3600 gross pa. But thanks for the reminder as the MPAA has bounced around a few times and I'd forgotten it had now dropped to £4.

tikunetih
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Re: Tax Claim from a Pension

#356977

Postby tikunetih » November 16th, 2020, 11:29 am

gadgetmind wrote:My wife has been both contributing to her SIPP (£2880/£3600 or her entire earnings for the year if larger than £3600 (netted down when paid in)) for a decade or two, and for the last 2-3 years has also been taking a monthly income from her SIPP. This avoids the inconvenience of claiming back the tax but you have to be happy with monthly income.


I understand that HL permits one-off income withdrawals, in addition to monthly income withdrawals.

You've referred to your wife taking monthly income, and with this avoiding needing to claim back (overpaid) tax later. Is this just because you've managed to ensure HL has the correct tax code for her, or is there some other factor? And in any case, is it only possible to avoid overpaying tax on the income withdrawals (and thus avoid the need to claim back tax) if you choose monthly income instead of one-off withdrawals?

I'm just trying to understand the mechanics and specifics of this (which'll be useful for someone I know), so any input welcomed.

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Re: Tax Claim from a Pension

#357008

Postby NegevSouth » November 16th, 2020, 12:46 pm

I started this thread back in March and my wife actually did what was intended.
She put £2,880 into an HL SIPP at the time and a further £2,880 in April. Her balance therefore was £7,200 after HMRC's 25% uplift.
She withdraw £1,800 in June as her 25% tax-free amount and then requested to withdraw £5,300 (leaving £100 in order to keep the account open).

So therefore she received £4,240 (£5,300 less 20% tax). The very day she received this amount, she applied online to reclaim the tax deducted, using the P55 form. What surprised us was that HMRC refunded the tax (£1,060) straight into her bank account after 6 days only! From what we heard and considering the effect of the pandemic we were expecting it to take at least a month and possibly more. 6 days is impressive.

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Re: Tax Claim from a Pension

#357137

Postby Chrysalis » November 16th, 2020, 7:00 pm

tikunetih wrote:
gadgetmind wrote:My wife has been both contributing to her SIPP (£2880/£3600 or her entire earnings for the year if larger than £3600 (netted down when paid in)) for a decade or two, and for the last 2-3 years has also been taking a monthly income from her SIPP. This avoids the inconvenience of claiming back the tax but you have to be happy with monthly income.


I understand that HL permits one-off income withdrawals, in addition to monthly income withdrawals.

You've referred to your wife taking monthly income, and with this avoiding needing to claim back (overpaid) tax later. Is this just because you've managed to ensure HL has the correct tax code for her, or is there some other factor? And in any case, is it only possible to avoid overpaying tax on the income withdrawals (and thus avoid the need to claim back tax) if you choose monthly income instead of one-off withdrawals?

I'm just trying to understand the mechanics and specifics of this (which'll be useful for someone I know), so any input welcomed.



My understanding is that an UFPLS withdrawal is always taxed as though it is a regular monthly payment, and therefore only one month’s personal tax allowance is allocated to each payment. Since many people use an UFPLS as a one off or annual withdrawal, they will generally overpay tax and have to claim a rebate. If you are taking the same amount every month then the tax code should actually be correct.

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Re: Tax Claim from a Pension

#357293

Postby gadgetmind » November 17th, 2020, 10:29 am

tikunetih wrote:
gadgetmind wrote:fgv
You've referred to your wife taking monthly income, and with this avoiding needing to claim back (overpaid) tax later. Is this just because you've managed to ensure HL has the correct tax code for her, or is there some other factor? And in any case, is it only possible to avoid overpaying tax on the income withdrawals (and thus avoid the need to claim back tax) if you choose monthly income instead of one-off withdrawals?


Yes, with monthly income and HL having her tax code, her income is within her personal allowance so no tax. If she took a (say) annual lump sum, then the PAYE tables/calculations would assume she was going to earn that every month, blowing her personal allowance, and even hitting 40% tax. In my case, my monthly income is organised to use personal allowance and all of basic rate band (leaving a little wiggle room for interest and dividends) but again this only works smoothly as done monthly.

At least that's my understanding of how non-monthly would work.


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