My wife's self employed income into a SIPP

[gadgetmind]

Please check my thinking/working.

My wife will earn around £6k this year from local government employment. She will also have around £10k from licensing some intellectual property, which we have always declared as self-employed income in the past.

I think she'll have Class 4 NI of £10k-£8.5k(ish) * 9%, so around £135.
She'll also have income tax of (£6k+£10k)-£12.5k=£3.5k * 20% so tax of around £700.

As her total earned income is £16k, she should be able to put £12800 into (her existing and quite healthy) SIPP, which HMRC will gross up to £16k, so an extra £3.2k.

As she's now over 55, has just resigned her job, and the £10k is a "final rights buy out" type of thing, she can then draw down SIPP in £12.5k tax free chunks for the next few years.

Sounds like she'd be mad to not use the SIPP to get tax back (and a bit more) but am I missing something?

Thanks

[gryffron]

Sounds like she'd be mad to not use the SIPP to get tax back (and a bit more) but am I missing something?

Pension income is taxable. So if she continues to earn that £10kpa IP in retirement, then she'll end up paying just as much tax when she takes money OUT of the Pension, as she gains paying it IN. IF that is the case, she might as well use a more flexible ISA.

Gryff

[Alaric]

So if she continues to earn that £10kpa IP in retirement

I think the OP was suggesting that this year's payout was a buyout of future rights, therefore there wouldn't be a future income from this source.

When the Coalition government and the Conservatives increased the personal tax allowances, they perhaps didn't realise that as well as giving a tax break to the lower paid, they were also handing one to those wealthy enough to be able to afford to retire early. That's by virtue of allowing a pension withdrawal without tax up to and beyond ( with the 25% lump sum) the personal allowance.

[gadgetmind]

I think the OP was suggesting that this year's payout was a buyout of future rights, therefore there wouldn't be a future income from this source.

Yup, further income from this IP unlikely (though a few £100 pa from royalties dating back to the 80s!)

When the Coalition government and the Conservatives increased the personal tax allowances, they perhaps didn't realise that as well as giving a tax break to the lower paid, they were also handing one to those wealthy enough to be able to afford to retire early. That's by virtue of allowing a pension withdrawal without tax up to and beyond ( with the 25% lump sum) the personal allowance.

As I can't recall when I last had so much as a penny of personal allowance myself, my wife being able to at long last use hers is heartening, and we intend to make hay while the sun shines.

So, are my numbers/plans about right? Can she not only shelter this windfall from tax but "gear up" and claw back some of what she's previously paid?