MPAA Budget Increase

[airbus330]

So Mr. Hunt has increased the MPAA Money Purchase Annual Allowance from £4000 per year to £10000 per year.

Do Fools believe that it is worthwhile, post activating the MPAA , to contribute new money into a SIPP to take advantage of the tax relief? Particularly if you are a 20% rate taxpayer.

I feel that it is, but also feel I might be working the maths out incorrectly.

[paulnumbers]

I don’t see why not. Should be worth 6.25% to you. An easy way to make £625

[TUK020]

The main threshold is now the higher rate tax threshold on withdrawing pension income.
At this point it is not worth using the extra MPAA, as you then get taxed the same out as you would going in, and at the same time running the risk of rule changes while you money is in the pension pot.

[airbus330]

Thanks for the replies.

It seems I can do maths!

Bearing in mind the hassle factor, this only seems a worthwhile ploy if you are a non taxpayer or a higher rate tax payer.

My wife retires this year and her total income will be around 10k. So, churning 10k each year through a SIPP rather than me using the MPAA would probably be a better use of time.

Its a good point about the political risk. It has certainly crystallised my decision to take my PCLS before the next election.

[TUK020]

does the increase in MPAA take immediate effect? or from the next tax year?

[TUK020]

does the increase in MPAA take immediate effect? or from the next tax year?

Answered my own question - it is from next tax year 2023/24

[DrFfybes]

DAK if the limit for those with no earned income is increasing from the £3600 net pa? Can't seem to find anything on it anywhere.

BTW, the cynic in me suspects removing the LTA is in preparation for restricting the amount of pension you can pass on outside of the estate on death to avoid IHT.

Paul

[Tedx]

DAK if the limit for those with no earned income is increasing from the £3600 net pa? Can't seem to find anything on it anywhere.

BTW, the cynic in me suspects removing the LTA is in preparation for restricting the amount of pension you can pass on outside of the estate on death to avoid IHT.

Paul

Its £3600 gross. And no, I dont see any change to that either

[Alaric]

BTW, the cynic in me suspects removing the LTA is in preparation for restricting the amount of pension you can pass on outside of the estate on death to avoid IHT.

The IHT issue is one that comes into focus with the Pension Freedom reforms in the Osborne era.

With defined benefit schemes unless there was added life insurance, there was no particlarly large amount payable under discretion and thus outside of IHT. If annuity purchase was compulsory, again there wasn't a large sum distributable. Drawdown existed before Pension Freedom, but there were minimum amounts of income required to be withdrawn. Again this limits "pot size".

[MDW1954]

I'm obviously being dim, or perhaps not understanding the question.

Where does the 6.25% come from?

I get that we're talking about £10,000 -- I don't see where the 6.25% comes from.

MDW1954

[mc2fool]

I'm obviously being dim, or perhaps not understanding the question.

Where does the 6.25% come from?

I get that we're talking about £10,000 -- I don't see where the 6.25% comes from.

MDW1954

Pay in £8000. HMRC adds £2000 (to gross it up by BRT rate) = £10000

Withdraw £2500 tax free (25%). Withdraw remaining £7500 taxed at BRT rate of 20% = £6000.

£8000 in, £8500 out. 8500/8000 = 1.0625

[swill453]

I'm obviously being dim, or perhaps not understanding the question.

Where does the 6.25% come from?

I get that we're talking about £10,000 -- I don't see where the 6.25% comes from.

If your tax rate when drawing down a pension is the same rate as the tax relief you got when paying in, then the only Income Tax saving is on the 25% PCLS.

If it's basic rate, then the saving is 20% of 25%, or 6.25%.

(Note this holds true even if the pension pot has grown in the meantime.)

EDIT: I obviously took too long to type this!

Scott.

[MDW1954]

Ah! Thanks, both. Naughty but legal. Alas, I only ever put money into pensions, hence my myopia.

Thanks for clarifying.

MDW1954

Moderator Message:
Actually, on reflecting, that's not quite true. I am also engaged on a multi-year crystallization strategy. So thank you both, again! -- MDW1954

[TUK020]

Can you still get tax relief on MPAA contributions for this tax year 2022/23 if one has already crystallized >100% LTA?

[goRt]

Can you still get tax relief on MPAA contributions for this tax year 2022/23 if one has already crystallized >100% LTA?

Yes, 4k