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Pension

Would appreciate some assistance on pension contribution rules.

A friend of mine is 62 and employed by NHS where she is a member of a final salary pension scheme.

For example only, assume that she has earnings from employment of £30k and a large investment income of , say £50k for this year.

Am I right in thinking that from 2006/7 she can contribute all of her earnings (ie 30k) into a SIPP and get 40% tax relief on the £30k?

Secondly, she can take 25% of the SIPP as a tax free lump sum? So she ends up with an investment in SIPP of £22.5k for a cost of £11.5k (30k -40%-7.5)

Thirdly, if she is renting out a residential property - is this a trade

- if so can the profits from this also be paid into a pension fund?

Finally can she still do that in respect of 2005/6 or are the rules only effective from 2006/7

Many thanks for any help.

Reply to
joe
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Not my area, but I think so.

Basically, yes (except that 30-60%-7.5 is 10.5, not 11.5), if you measure the cost in terms of lost net income, and if you take the lump sum straight away. Normally you would leave the lump sum in the investment until you "retire", but I gather you can take it out immediately if you're over 50.

It's not a trade (hence no NI payable) but it's still taxable income, so I think it would be eligible.

I don't think it can be backdated to before the rules changed.

Reply to
Ronald Raygun

Also remember that when she takes benefits from the SIPP these will be taxed, so if she has this 50k pa investment income for the long term then the whole SIPP income will be taxed at 40%. So 22.5k in a SIPP would then be effectively worth

13.5k outside, and she will be greatly restricted in how she draws from it. Plus there are likely to be higher charges in a SIPP than an equivalent investment outside.
Reply to
Andy Pandy

Andy Goodpoint. No £50k is one off. She will retire shortly as she is in her early 60s and has a pretty small pension. The trouble before was that she couldnt have an employer scheme and a personal pension.

Reply to
joe

...

"joe" wrote

Makes one wonder what happened to the investment that gave the 50K income - did it suddenly lose all value, or was it cashed-in and spent on flash cars? :-(

Reply to
Tim

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