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Using pension cash to add to another pension?

zico
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Using pension cash to add to another pension?

#103479

Postby zico » December 11th, 2017, 8:12 pm

I've got 2 separate AVC's (one with Scottish Widows (SW) and the other with Halifax (which is now also run by SW, but I'll call it Halifax in this post to distinguish between the 2.

I'm drawing down income from the SW pension, and my question is - can I use this money to add to my Halifax pension, and what are the benefits?

My understanding is that I can put £10k into the Halifax pension (actually £8k cash, topped up by 20% tax rebate) and then when I come to withdraw from the Halifax pension, I'll be able to take 25% tax-free, so achieving a net benefit of £500 (by not paying 20% tax on the £2,500 tax-free amount).

Does this sound right?
(Incidentally, there doesn't have to be a clear link between taking cash from SW pension to put into Halifax pension - I could take money from a Cash ISA instead to fund the £10k payment).

I know there are penalties of 55% tax rate for people getting this wrong, so want to check I'm OK to do this?

Supplementary question - if this is OK, how many previous tax years can I go back - i.e. can I put £10k in for 2015/16,2014/15 etc.

zico
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Re: Using pension cash to add to another pension?

#103501

Postby zico » December 11th, 2017, 9:25 pm

I may have found the answer to my question on the link below, but would still like to check my understanding.
It looks like HMRC are saying once I start taking any pension income, my allowance goes down to £4,000 and I can't use previous year's unused allowances (presumably this applies even though there are 2 different pensions in my case).
So it seems I can put in £4,000 to my Halifax pension, and this will be worth £200 to me (£1,000 tax-free cash that otherwise I'd have paid 20% tax on).

https://www.gov.uk/tax-on-your-private- ... -allowance

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Re: Using pension cash to add to another pension?

#103505

Postby Alaric » December 11th, 2017, 9:42 pm

zico wrote:So it seems I can put in £4,000 to my Halifax pension


You also need earnings from employment of at least this amount. Without any earnings, the maximum contribution is £ 2880 (net), £ 3600 (gross).

As you may have noticed HMRC aren't terribly keen on giving out money in this manner.

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Re: Using pension cash to add to another pension?

#103516

Postby zico » December 11th, 2017, 11:07 pm

So can I put in £2,880 to my other pension this year, and still get the £720 bonus?
I thought this would only work if I didn't have any other income, and I'm taking drawdown from my other pension to an amount just below the 40% tax bracket.

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Re: Using pension cash to add to another pension?

#103520

Postby Alaric » December 12th, 2017, 12:21 am

zico wrote:So can I put in £2,880 to my other pension this year, and still get the £720 bonus?


As far as I am aware that's always available unless your only source of funding the £ 2880 is a pension commencement lump sum ( previously the tax free cash at retirement) .

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Re: Using pension cash to add to another pension?

#103535

Postby swill453 » December 12th, 2017, 6:34 am

Alaric wrote:
zico wrote:So can I put in £2,880 to my other pension this year, and still get the £720 bonus?


As far as I am aware that's always available unless your only source of funding the £ 2880 is a pension commencement lump sum ( previously the tax free cash at retirement) .

Even that's not a problem. Contributing the minimal £2880 net amount will never be caught by the pension recycling rules.

Scott.

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Re: Using pension cash to add to another pension?

#103584

Postby Chrysalis » December 12th, 2017, 12:18 pm

But you can't do it after the age of 75 (iirc)

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Re: Using pension cash to add to another pension?

#103766

Postby zico » December 12th, 2017, 9:10 pm

I'm drawing down about £40k from my first pension. Can I really claim this as "no other earnings". I'd thought the £3,600 applied only to people receiving no taxable income, or income below the tax threshold.

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Re: Using pension cash to add to another pension?

#103768

Postby swill453 » December 12th, 2017, 9:15 pm

zico wrote:I'm drawing down about £40k from my first pension. Can I really claim this as "no other earnings". I'd thought the £3,600 applied only to people receiving no taxable income, or income below the tax threshold.

Yes can can contribute net £2880 (gross £3600) and benefit to the tune of £180 (by not paying tax on 25% lump sum, £900, assuming you're on 20% tax).

Scott.

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Re: Using pension cash to add to another pension?

#104450

Postby mearnsfool » December 15th, 2017, 9:38 pm

It works well if you were not paying 20% tax but you are therefore the advantage is quite small.

If there is already a good sum in there then it could be quite a few years before you can get the taxed amount to avoid 40% tax out and maybe the 20% BR will have gone to 21% if you are in Scotland and if there is no big kick back in Scotland the Westminster mob may follow suit. Therefore the £180 gift goes to £177.50.

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Re: Using pension cash to add to another pension?

#104990

Postby ursaminortaur » December 18th, 2017, 6:05 pm

swill453 wrote:
zico wrote:I'm drawing down about £40k from my first pension. Can I really claim this as "no other earnings". I'd thought the £3,600 applied only to people receiving no taxable income, or income below the tax threshold.

Yes can can contribute net £2880 (gross £3600) and benefit to the tune of £180 (by not paying tax on 25% lump sum, £900, assuming you're on 20% tax).

Scott.


What you can pay into a pension is based upon what are known as relevant earnings - this is generally what you earn through employment though there are a few other things that count. However one thing that definitely does NOT count as relevant earnings is anything you get from a pension via drawdown or as an annuity.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings.

Hence it is possible to drawdown enough from a pension to be a higher rate tax payer but still have no relevant earnings and hence be restricted to only contributing net £2880 (gross £3600). If you were in that position though you would be able to fill in a self-assessment tax form and reclaim the extra 20% tax (to get the full 40% tax relief). How much 40% tax relief you would get would of course depend upon how far into the 40% band your drawdown took you and whether that fully or only partially covered your pension contribution.

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Re: Using pension cash to add to another pension?

#107619

Postby zico » January 3rd, 2018, 10:57 am

Does anyone know how far back can I go in using my tax allowances from previous years to put this £2,880 into a SIPP?

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Re: Using pension cash to add to another pension?

#107621

Postby Alaric » January 3rd, 2018, 10:59 am

zico wrote:Does anyone know how far back can I go in using my tax allowances from previous years to put this £2,880 into a SIPP?


I don't believe you can go any further than 6th April 2017. It's one of those use it or lose it allowances.

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Re: Using pension cash to add to another pension?

#107694

Postby ursaminortaur » January 3rd, 2018, 4:10 pm

Alaric wrote:
zico wrote:Does anyone know how far back can I go in using my tax allowances from previous years to put this £2,880 into a SIPP?


I don't believe you can go any further than 6th April 2017. It's one of those use it or lose it allowances.


There used to be something called carry-back which allowed you to pay money into previous pension years.
However that is long gone. Nowadays you have carry-forward which allows you to bring forward the previous 3 years unused annual allowance into the current year. But to use that you first have to use up this years annual allowance of £40,000.
Hence to make use of carry-forward you need to have relevant earnings of more than £40,000.
If you are just making a contribution of £2,880 because you have no relevant earnings then you cannot make use of carry-forward. Similarly if you have relevant earnings this year but they are less than £40,000 you cannot make any use of carry-forward.
If on the otherhand you had relevant earnings this year of £70,000 and had not used up your previous 3 years annual allowances eg had £10,000 allowance free in each year then you would be able to contribute all your £70,000 gross earnings this year.

Note. Carry-forward is also not available to use if you have started drawdown and taken out more than the tax-free lump sum
(Those who took out capped drawdown before that was replaced a few years ago though will still be able to make use of carry-forward if they have not taken out more than the capped GAD amount each year in addition to the tax free lump sum).

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Re: Using pension cash to add to another pension?

#158666

Postby zico » August 10th, 2018, 11:23 pm

Yes can can contribute net £2880 (gross £3600) and benefit to the tune of £180 (by not paying tax on 25% lump sum, £900, assuming you're on 20% tax).


Just want to double-check on this as I'll be taking a regular pension soon. It seems that any pensioner can simply set up a SIPP, put £2,800 net per year, have it increased to £3,600 and then not pay tax on 25% lump sum. So for an "investment" of £2,880 you can get an extra £180.

I was wondering why doesn't everyone do this - it simply looks like free money for pensioners.

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Re: Using pension cash to add to another pension?

#158671

Postby Alaric » August 10th, 2018, 11:50 pm

zico wrote:I was wondering why doesn't everyone do this - it simply looks like free money for pensioners.


Not everyone can afford it, but there's also the issue of how you get back the 75% that isn't part of the lump sum.

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Re: Using pension cash to add to another pension?

#158795

Postby zico » August 11th, 2018, 5:25 pm

With a SIPP you can simply withdraw the 75% that isn't part of a lump sum - it's just something to pay tax on.

Seems to me that you can put in £2,880 to a SIPP at (say) end-March, then withdraw £3,600 once the tax credit has been added, and of that amount 25% is a tax-free, hence saving 25% of the £720 - i.e. £180 in just a few months.

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Re: Using pension cash to add to another pension?

#158807

Postby ursaminortaur » August 11th, 2018, 6:24 pm

zico wrote:With a SIPP you can simply withdraw the 75% that isn't part of a lump sum - it's just something to pay tax on.

Seems to me that you can put in £2,880 to a SIPP at (say) end-March, then withdraw £3,600 once the tax credit has been added, and of that amount 25% is a tax-free, hence saving 25% of the £720 - i.e. £180 in just a few months.


You need to watch out on charges. Youinvest for instance will charge you £295 + VAT if you setup a SIPP and then withdraw everything within a year.

https://www.youinvest.co.uk/sipp/charges-and-rates

Closure of your SIPP through taking flexi-access drawdown payments or uncrystallised funds pension lump sums within 12 months of opening your SIPP
£295

.
.
.
The closure charge will apply where you have reduced the value of your SIPP to £1,000 or less through taking flexi-access drawdown or uncrystallised funds pension lump sums within 12 months of opening your SIPP. We will be entitled to close your account and pay the remaining funds to you, after deducting our charges


I'm not sure if any other providers have similar charges but you should certainly check or if going with Youinvest be prepared to leave the money in the SIPP for at least a year.

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Re: Using pension cash to add to another pension?

#158822

Postby mc2fool » August 11th, 2018, 8:54 pm

zico wrote:Seems to me that you can put in £2,880 to a SIPP at (say) end-March, then withdraw £3,600 once the tax credit has been added, and of that amount 25% is a tax-free, hence saving 25% of the £720 - i.e. £180 in just a few months.

Only if the SIPP is free, and none are. How about you look around and see what the best you can do in reality is....

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Re: Using pension cash to add to another pension?

#159628

Postby mearnsfool » August 14th, 2018, 6:17 pm

Watch what you are doing here as you are assuming all sorts of things like what government will do via pensions and tax rates in the future.

You are saying you are drawing down £40k a year. I assume you are some way off State Retirement Age.

When you hit SRA you will get your state pension.

How long can you go on drawing down a sum equal to £40k or £40k less state pension.

It could well be that you may have to wait many years to get the other £2,700 per year you paid in out of the SIPP for each years contribution up to the day before you 75th birthday.

OK it is a small win to get your £180 or so prize but not if you have to wait a long time to get the rest out and we do not know what changes to tax rules will be made over the next few years never mind in 10 years time.


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