Pensions tax, CGT tax. And stuff
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Guys,
Following on from a very helpful telephone call with Nik (thanks again Nik) I think I've got to the bottom of what I would be sensible to do. In my case, with my having no income and my wife having income up to nearly the limit of Basic Rate tax, I'll take out as much from my GIA as she is paid in post-tax income, we'll pay that amount into her pension and the tax we pay on the crystallisation of the GIA gain will be balanced by the refund of income tax paid into her pension.
However as I have thought about it I think I have two further questions, as follows;
A. Mrs 2BToo has paid 20% tax on her income, but the money that I take out of my GIA will be taxed at 10%. Does this mean that we get back more in tax relief (from refunded income tax) than we pay in CGT?
B. If Mrs 2BToo receives tax relief on all of the money she has paid into her pension then does she not receive more tax relief than she has paid, given that she has only paid tax on the income above the personal allowance (£12750) ? This relates to Question 2 and Answer 2 in the above posts.
IF I understand things correctly then these two points will mean that we end up quite some way ahead on tax, non? (Note the 'IF' in this sentence - it's doing a lot of work.)
Thanks again.
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if it is of any help to your thoughts, 'er indoors current sole income is 'er
state pension. She has not, yet, started to draw from 'er SIPP, in fact she is paying in a nominal £100pm and this gains 'er a free £25 from Rachel Thieves!Winner winner chicken dinner!
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Guys,
Following on from a very helpful telephone call with Nik (thanks again Nik) I think I've got to the bottom of what I would be sensible to do. In my case, with my having no income and my wife having income up to nearly the limit of Basic Rate tax, I'll take out as much from my GIA as she is paid in post-tax income, we'll pay that amount into her pension and the tax we pay on the crystallisation of the GIA gain will be balanced by the refund of income tax paid into her pension.
However as I have thought about it I think I have two further questions, as follows;
A. Mrs 2BToo has paid 20% tax on her income, but the money that I take out of my GIA will be taxed at 10%. Does this mean that we get back more in tax relief (from refunded income tax) than we pay in CGT?
B. If Mrs 2BToo receives tax relief on all of the money she has paid into her pension then does she not receive more tax relief than she has paid, given that she has only paid tax on the income above the personal allowance (£12750) ? This relates to Question 2 and Answer 2 in the above posts.
IF I understand things correctly then these two points will mean that we end up quite some way ahead on tax, non? (Note the 'IF' in this sentence - it's doing a lot of work.)
Thanks again.
Good to catch up and glad that you found it useful
A) Yes you get more tax relief on pension contributions than you pay CGT. In this case as a basic rate tax payer it is, as you say, 10% CGT and 20% tax relief on contributions. So a £10,000 capital gain (after allowances) costs you £1,000 in CGT while a £10,000 pension contribution actually gains you £2,500 in tax relief (the 20% relief is calculated on the gross contribution)
B) Again yes she does, you are gaining tax relief on the £12,570 of income that no tax has been paid on, so as you say getting tax back that hasn't actually been paid.Cheers
Nik
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Nik,
Thanks. In that case then that small exercise sounds like it's a good way of saving a goodly chunk of tax. Why didn't I do it in years gone by?!?
(And I hope that a certain Mrs Reeves doesn't read this, for reasons that don't need to be explained.)
Thanks again.
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Nik,
Thanks. In that case then that small exercise sounds like it's a good way of saving a goodly chunk of tax. Why didn't I do it in years gone by?!?
(And I hope that a certain Mrs Reeves doesn't read this, for reasons that don't need to be explained.)
Thanks again.
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@2BToo For that, we have to rely on Nik to fully grasp Rachel Thieves intentions and find the loopholes!
But a Chancellor who takes pensioner's WFA without regard to Age Concern's comments is probably capable of devising a scheme of attacking SIPP's and ISA's as well.
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@Nik-Burrows Thank you for the speedy reply to the email, much appreciated.
