Is it a good idea to defer my state pension including SERPS to minimise tax?
In the tax year (and subsequent years) when a man becomes 65 the personal allowance increases from £5,035 to £ 7,280 (2006/7 rates) which means you can earn that much more before paying tax, although there is a clawback of the extra allowance when your income exceeds £20,100. The clawback is £1 for every £2 the income exceeds £20,100 but the personal allowance cannot be reduced below £5,035. At the same age men (women – 60) cease to be liable to both Class 2 and Class 4 National Insurance contributions.
You say you will continue to work and to employ your wife. This will be possible as you are self employed and your wife would become an employee. The tax implications will, in part, depend upon your wife’s circumstances. In particular, is she in receipt of other income such as a State Retirement Pension? If so, her income from employment with you will be aggregated with her other income and taxed accordingly. So you may or may not be better off.
You need to sit down and look at the tax implications from both perspectives. It might well be advantageous to employ your wife as you could possibly have three incomes – your deferred pension, your state retirement pension and your income from work which might point to a tax saving by employing your wife.
Whether it is a good idea to defer your state pension depends on your earnings and whether you and your wife can manage without your state retirement pension.
Deferral of state pension can secure benefits – either extra state pension or a one-off taxable lump sum payment when you do claim, whether after claiming you carry on working or not. For as long as you continue working it might be wise to defer the state retirement pension but you need to consider the figures of you and your wife’s income and expenses in detail.