Investing Inheritance in pensio

[sleepwouldbenice]

Hello.DH has received £30k inheritance after the death of his father
Our mortgage is paid off so the focus would be savings and pensions
We have ISAs etc already

Is it worth paying the money into pension to get boosted by tax relief?

Thanks

Is he working? Does he already pay into a pension?

Assuming he is not already drawing a pension, he can get the tax relief to the extent he pays tax. So if he would be paying £30k in tax he could pay all of it in. If not it would have to be spread over future years.

He would claim the tax relief via a tax return and would then have to pay this into his pension There is also a cap of £60k per year on pension contributions.

Look up relevant earnings. There is a £60,000 cap including employers contributions but you need sufficient relevant earnings to use it all in the same tax year.
HMRC will send the tax top up to your private pension provider approx 6 weeks after your own personal payment.
If you are a higher rate tax payer the extra tax relief will be paid to you via your salary and tax code.

Thanks all. I think there is some headroom there. Might be best over two years

Actually in terms of cap, you can back date 3 years too?

You can save £30k if he earns £30k. The 3 year rule is allowance for input, not earnings

worth noting that is £30k gross, so £24k net contribution

Is his marginal tax rate 40% or 20%?
He will get taxed on pension when he takes it (although 25% is tax free) so it makes much more sense if he pays 40% tax and it is more marginal at 20%

40%

Thanks all

Depending how much he earns, it is worth planning so that you get all of the tax relief at 40%.

so eg if he earns £10k into the 40% tax band, put in 10k gross (so £6k net) per year and put it the remainder in an ISA or something in the meantime. Don’t forget he will get tax relief on gross earnings so you need to adjust for the net amount after tax.

If he can do it via his work pension scheme out of earnings and use the £30k to make up the shortfall in income, he will also save NI on the payments into it.

If he does it into a SIPP he will only get 20% tax relief at source then will have to reclaim the rest via a tax return - which can then also be added to the pension.

You can only backdate once you have used the full £60k allowance for the current year, that’s assuming you also have spare allowance from 3 years ago, as it works backwards.
In other words, it only benefits high earners, as usual.

He could give you money to put in an ISA in your name too if you've not used your allowance.