Should I start paying into a pension - advice appreciated

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  • AlanP_2
    AlanP_2 Posts: 3,252 Forumite
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    Terron wrote: »
    You could just sell a property, assuming you bought where prices are reasonable. Better though not to have BTL as your only retirement option.

    Yes, but you can't sell "half a room" as per the example I used.
  • Terron
    Terron Posts: 846 Forumite
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    AlanP wrote: »
    Yes, but you can't sell "half a room" as per the example I used.

    Well given that a whole property might fetch only £25k after repaying the mortgage (100k with 75k mortgage) why would you want to?
    Half a room would not pay for that dream holiday, assuming you were buying where prices are reasonable, as I said.

    My point is that in some areas BTL does not tie up large sums per property, which you seemed to be assuming.
  • Simon_Jay
    Simon_Jay Posts: 22 Forumite
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    Sorry to add another post at this late stage but I have been looking at sorting things and would be grateful if somebody could confirm that I have looked at this correctly. Looking at reducing salary and paying extra as dividend or to pension

    CURRENT 30K SALARY

    Salary 30,000
    Tax on Salary (6318)
    Result = 23,682

    12K SALARY WITH 18K DROPPING THROUGH TO DIVIDEND

    Salary 12,000
    Dividend 16,592 (add emp NI, subtract corp tax)
    Tax on Salary (558)
    Tax on Dividend (1244) (7.5% - initial 5,000 exemption will have been used with other dividend)
    Result = 26,790

    12K SALARY WITH 18K TO PENSION

    Salary 12,000
    Company Pension Payment 20484 (18,000 plus emp ni)
    Tax on Salary (558)
    Tax on Pension (3072) (20% on 75% when taken)
    Result = 28,854

    Thank you
  • atush
    atush Posts: 18,726 Forumite
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    yes you should use a pension
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    What are you basing the tax figures on as they both seem high.
  • Simon_Jay
    Simon_Jay Posts: 22 Forumite
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    Dazed_and_confused wrote: »
    What are you basing the tax figures on as they both seem high.

    Thanks for coming back. Maybe I have calculated things incorrectly - the tax figures are

    CURRENT 30K SALARY

    Salary 30,000
    Tax on Salary (6318)
    Result = 23,682
    [THIS IS THE TAX AND NATIONAL INSURANCE IF PAID AS SALARY £2500 EACH MONTH]

    12K SALARY WITH 18K DROPPING THROUGH TO DIVIDEND

    Salary 12,000
    Dividend 16,592 (add emp NI, subtract corp tax)
    Tax on Salary (558)
    Tax on Dividend (1244) (7.5% - initial 5,000 exemption will have been used with other dividend)
    Result = 26,790
    [TAX AND NI ON £12K SALARY PAID AS £1000 PER MONTH = £558, 18K DIVIDEND HAS EMPLOYERS NI ADDED, THEN IT DROPS THROUGH AS PROFIT SO 19% CORP TAX DUE AND THEN I PAY 7.5% TAX (I HAVE NOT INCLUDED THE 5K DIVIDEND ALLOWANCE AS I WILL HAVE OTHER DIVIDEND THAT WILL TAKE THIS]


    12K SALARY WITH 18K TO PENSION

    Salary 12,000
    Company Pension Payment 20484 (18,000 plus emp ni)
    Tax on Salary (558)
    Tax on Pension (3072) (20% on 75% when taken)
    Result = 28,854
    [TAX AND NI ON £12K SALARY PAID AS £1000 PER MONTH = £558, TAX ON DIVIDEND IS BASED ON PAYING 20% ON 75% OF THE AMOUNT (FIRST 25% TAKEN TAX FREE)

    I hope this is clearer on how I am looking at the tax but I might have it wrong.

    Thank you very much indeed for your help
  • atush
    atush Posts: 18,726 Forumite
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    Tax on Pension (3072) (20% on 75% when taken)

    Not always correct- this is the worst case scenario. There could be little to no tax paid if you retire before SPA and use your PA
  • Simon_Jay
    Simon_Jay Posts: 22 Forumite
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    atush wrote: »
    Not always correct- this is the worst case scenario. There could be little to no tax paid if you retire before SPA and use your PA

    Thanks for your reply. Yes I see what you are saying. I have been looking at this further with the intention of trying to retire earlier than SPA. I am now thinking that, if I pay in to the pension in this way for say the next 8 years, stop work and then draw down against the pension. As my only income this would attract very little tax and could maybe support me for the following 7 years until SPA.

    Thanks again for your help
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