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Where Taxpayers and Advisers Meet

Pension Income and Tax Allowances

Jupiter01
Posts:51
Joined:Tue Jul 11, 2023 8:11 pm
Pension Income and Tax Allowances

Postby Jupiter01 » Mon Sep 25, 2023 1:05 pm

I have a workplace pension and a SIPP. I am hoping for these to grow substantially by the time I retire in 20 years. My wife does not have a workplace pension but has been working part time and will be entitled to a state pension.

When we retire, is there anyway that income from my workplace pension and SIPP is covered by our joint allowances and thereby giving us more tax free income each year and then keeping it in the middle rate as opposed to tipping over into the 40% tax band if everything is based on my allowances? I am tryin to find a way of utilizing both of our tax allowances.

Thanks in advance.

Jupiter01
Posts:51
Joined:Tue Jul 11, 2023 8:11 pm

Re: Pension Income and Tax Allowances

Postby Jupiter01 » Thu Sep 28, 2023 8:52 pm

I would be grateful for any advice on this please. Thanks in advance.

D&C
Posts:149
Joined:Mon Nov 25, 2019 11:35 pm

Re: Pension Income and Tax Allowances

Postby D&C » Thu Sep 28, 2023 9:55 pm

You really don't have "joint" allowances.

Is there any reason why your wife isn't contributing to a SIPP or personal pension??

It seems a win win for her, basic rate tax relief added to her contributions on the way in with, if she has unused Personal Allowances, scope to get plenty out without paying tax on it in due course.

For example if she earns say £5,000 she can contribute £4,000 net and get £1,000 in basic rate tax relief added to make a gross contribution of £5,000.

Jupiter01
Posts:51
Joined:Tue Jul 11, 2023 8:11 pm

Re: Pension Income and Tax Allowances

Postby Jupiter01 » Fri Sep 29, 2023 7:22 am

My wife works very few hours and is keen to hold on to the small income she receives. We were also happy for me to do the bulk of the future finances…

She earns around 9k a year across two part time roles. We have now made some enquiries on what the workplace pensions offer. As you say, it’s free money from the employer and the top-up from government.

Even with the above, 99% of our retirement income will come from my pension and I am wondering if there is anyway that I can use my wife’s allowances towards this income too. Else it will all be subject to my allowances and in many cases, tip over into the 40% bracket.

Would appreciate your thoughts on this. Thanks.

D&C
Posts:149
Joined:Mon Nov 25, 2019 11:35 pm

Re: Pension Income and Tax Allowances

Postby D&C » Fri Sep 29, 2023 7:36 am

If it turns out that you aren't a higher rate payer then she could apply for Marriage Allowance. That reduces her Personal allowance from £12,570 to £11,310 and in return your income tax liability would be reduced by £252.

Other than that realistically I think you will just need to bite the bullet and be prepared to give your wife the money to allow her to build up a pension. So she can make use of her Personal Allowance.

As she has earnings of £9,000 relevant for pension contribution purposes if you give her £7,200 she could add that to a personal pension or SIPP and the pension company would add £1,800 in basic rate relief giving a gross contribution of £9,000.

Jupiter01
Posts:51
Joined:Tue Jul 11, 2023 8:11 pm

Re: Pension Income and Tax Allowances

Postby Jupiter01 » Fri Sep 29, 2023 9:51 am

Presumably, I will need to pay in less than £7,200 as there will be some employer contributions to be had from the workplace pensions at both of here art time jobs?

I will as a matter of course, max out any employer contributions that are available as part of the workplace pensions but am then unsure on whether I make additional contributions into her pension, knowing that the same contribution into my pension gets me 40% tax relief. On economics, is there a simple answer to this conundrum? i.e. am I better off growing my own pension quicker and as part of that benefiting from compounding of the underlying investment, knowing that there will be a tax liability on the other end. Or should I be diversifying to some degree?

Is there something I could do with my tax free cash at retirement that helps with the above? I would welcome your thoughts on this. Thanks again.


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