can my husband contribute to my stakeholder pension and then claim back extra tax relief as he is a higher-rate taxpayer?
Unfortunately not. If you are a basic-rate taxpayer then anyone contributing to your pension can only claim tax relief at the basic rate – and since your pension provider will claim this directly from HMRC, there will be no direct benefit to your husband.
However, he can use your pension allowance, and should consider doing this if he has exhausted his own tax-free allowances.
HOW MUCH CAN YOU PAY INTO YOUR PENSION?
Contribution limits for the tax year 2015-16
- You can contribute as much as you earn in a year, up to £40,000 a year
- You can also use HMRC’s “carry forward rules” to use the past three year’s pension contribution limits – if you haven’t already
- Once you start drawing from your pension your annual limit reduced to £10,000
- The lifetime pension limit is reducing from £1.25m to £1m next year
- ARE YOU A HIGH EARNER?
- Workers earning over £150,000 will have their annual pension allowance gradually reduced to £10,000 until they earn £210,000, at which point they no longer qualify for tax relief on contributions
Jason Hollands, of Tilney Bestinvest, the fund shop, said: “The level of tax relief on a pension contribution is based on the tax position of the individual who owns the pension.
“Couples where the main earner has exhausted their ability to further fund their pension scheme, for example if from the next tax year they will be restricted in making contributions because they earn over £150,000 a year and will face new rules ‘tapering’ down their annual pension allowances, should consider using their spouse’s or civil partner’s pension allowances.
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“But someone who pays no income tax, such as a non-earning spouse or a child, can invest up to £2,880 a year in a pension and get a top-up from the Government of £720 at the basic rate of tax relief, to make a gross contribution of £3,600.”
Mr Hollands highlighted another option: “If your husband’s primary objective is to mitigate an income tax liability, rather than build a retirement fund, he might also consider investing in a venture capital trust (VCT) share issue as these provide a 30pc income tax credit provided that the shares are held for at least five years.
“But it is important to understand that VCTs invest in small, illiquid UK companies and should therefore be regarded as higher-risk investments.”